In This Issue…

* Risk Assets rally stumbles…
* Fed to make rate forecasts public
* Chinese Home prices fall
* Ted Butler on Silver…

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

Germany Has Successful Bond Auction…

Good day… And a Wonderful Wednesday to you! My first day back was very busy, trying to go through past stuff, and getting current. I was beat, when I left for home! But then it was time for me be domestic, and fix dinner for my “starving” son Alex, who came in from wrestling practice. So, no rest for the weary! HA! I say that in jest, for I know what “real work” is, and was “real weary” feels like!

The currencies & metals enjoyed a day in the sun yesterday… but like me, they are looking a bit weary this morning. I told you yesterday to not get all caught up the price action of yesterday, for the markets were still pretty thin… I would think that by now, we would see some volume pick-up… I also believe that the focus which had been turned off for the Christmas holiday, will be turned back on to the goings on in Europe, and any time that happens, it won’t be good for the euro…

For instance, this morning, according to Eurostat, Eurozone inflation fell from 3% to 2.8% in November. And while slowing or falling inflation would normally be looked at as a reason to own a currency… In this new fangled world we live in, post financial meltdown of 2008, falling inflation tells the markets that a central bank will most likely view this as an opportunity to lower interest rates, and that isn’t appealing for currencies…

Of course, I chastised, new Eurozone President, Mario Draghi , when he cut interest rates at his very first meeting, because Eurozone inflation was 3%, and the European Central Bank’s (ECB) ceiling target was 2%… So, you might as well put it in the books, folks… if Draghi had no problems cutting interest rates when inflation was 3%, he’ll have the tracks greased for more rate cuts with falling inflation…

So… look for more rate cuts from the ECB as we go through the first half of this year…

And the currencies, which I said above looked a bit weary this morning, are seeing some selling as I bang on the keyboard with my fat fingers. As long as I’m on the Eurozone… Did you see that Greece fired a warning shot yesterday, saying that if they don’t get the next installment of their bailout, they would be forced out of the euro within 3 months? I find this kind of “spoiled rotten child” acting is of no use for me… And the Greeks had better watch how many times they “cry wolf”…

The “moderation” of the Chinese economy continues folks… Last night we saw the color of the latest report on Chinese Home Prices, which fell for the 4th consecutive month in December. I do believe that China finally has a grip on their inflation problem, and as such, we should see the Chinese adjust their reserve requirements, which is like cutting rates…

The Chinese have a tough row to hoe with their economy, but it’s all about moderation, not collapse… And I think we’ll see the Chinese ramp up their willingness to allow the renminbi to appreciate. As I’ve said over and over again for years now… The Chinese would get a lot of mileage from a stronger currency, with regards to their inflation fight…

Ok… the euro, which was trading 1.3030 when I came in this morning, has now fallen below 1.30… So, my suspicions of things looking weary, have been validated… The German bond auction that failed so miserably in November, was put back on the blocks today, and while the bonds were taken up without a problem, it wasn’t a “great auction” you know, with multiple times coverage… So, the bond news was OK… not great… and the euro suffers…

I was surprised by the markets muted reaction to the news yesterday that the U.S. Fed is going to begin to make public their interest rate forecasts 4 times per year… That’s real Big of them to do that for us, eh?

I don’t know if you caught the currency round-up yesterday, but in case you skipped over it, the price of Oil is back above $100… In fact, yesterday it was $101 and change, and today it is $102 and change, and, briefly saw $103 overnight…

So… knowing the price of Oil has been on the rise, once again, I’m somewhat surprised that the petrol-currencies like: Canada, Norway, Brazil, Russia, U.K. and even Mexico, aren’t basking in the warmth of a rising Oil price… The drag by the euro has been too strong…

Hopefully, as we go through 2012, the non-euro currencies can begin to trade on their own fundamentals…

I had a Pfennig reader send me a note yesterday, and said he didn’t understand the hub-bub about the euro falling to $1.18, considering that’s where it started, and then immediately fell to the low 80-cent region, before beginning its move to parity and beyond. Well… here’s the market mentality to that scenario… The euro, in pre financial meltdown was $1.60… so from $1.60 to $1.18, that’s quite a fall… But… if you bought euros when the early years, like in 2002 when I wrote the white paper “The Year of the Euro” it’s been one hell-of-a roller coaster ride!

If you saw a graph of the euro’s price since the financial meltdown, you would shiver thinking about that being a roller coaster ride! But in 2005, when we saw the first Homeland Investment Act (tax amnesty), the euro slipped from 1.36 to 1.18… In June of 2010 the euro slipped from 1.50 to 1.18… So, that’s why I said yesterday that I wouldn’t be surprised to see the euro drop to 1.18, or rise to 1.40… it could actually do both in 2012!

There was a story on the Bloomie yesterday titled: “Dollar’s demise exaggerated as 13% gain since 2008 proves currency is solid”… Hmmm… Well… if you use the dollar index as your guide, then yes, the dollar is up 13% against the dollar index… But it sure isn’t up 13% against currencies like Aussie dollars, Chinese renminbi, Singapore dollars, all currencies that are not included in the dollar index… So, misleading? I believe so…

So… let’s review the dollar index, for all of you keeping score at home… the dollar index includes: 57.6% euros, which is by far the heaviest weighting… the rest: 13.6% yen, 11.9% pound sterling, 9.1% Canadian dollar, 4.2% Swedish krona, 3.6% Swiss franc…

Gold had a good day yesterday rallying to $1,605 during the day, but is seeing selling this morning along with the currencies, and at this point is barely hanging onto $1,600… I saw a report that tied Gold to stock performance… Yes, it sure has seemed to be that way in the past year… But in the “old days” These two asset classes moved for different reasons… We’ll get back to that again… someday…

I always look forward to Ed Steer’s letter when it contains comments by Silver guru Ted Butler… So, this morning is no different… Here’s a comment from Ted Butler on the drop of the Silver price… as always, he pulls no punches…

“In Wednesday’s article I described the latest 35% price smash since September and how it was solely attributed to the deliberate speculative selling tripped off by the commercials that resulted in the commercial buying of at least 33,000 net contracts (165 million ounces). This is such an extraordinarily large amount as to defy comparison with any other commodity (save perhaps gold). At the equivalent of 22% of the world annual silver mine production, it is so large that it would be impossible for any group to buy such a net futures equivalent position in any other commodity. That’s because anyone trying to buy an equivalent futures position in copper, crude oil or corn of 22% of world production, would need to buy more than the current total open interest in any of those markets.”

Here in the U.S. the U.S. Manufacturing Index (ISM) printed stronger than forecast at 53.9, up from November’s 52.7… And the prices paid component that I warned you about yesterday, did increase by quite a bit in December… We saw the minutes of the last Fed meeting, which is where the announcement of the rate forecasts was made.

Today’s data cupboard is pretty bare with only November Factory Orders and December vehicle sales… So, nothing to move the markets in any direction.

With this being a “short week”, Friday will be here before we know it, and Friday will be a Jobs Jamboree Friday… We’ll also see the Household Employment Survey Annual Revisions… I’m sure these revisions will be done under the dark of night, in hopes that no one sees them…

I just had to stop to sing along with the Babys and their very cool song, Midnight Rendezvous… Now that song will get your blood going on a cold morning!

Then there was this…. Well… the Presidential primaries and caucuses kicked off last night… This is the beginning of a very long year of Political ads on TV and radio… I think I’m going to begin to just record everything I want to watch, and then play it back and skip the commercials… I find it interesting that there’s only one guy running for President that understands the debt problem we’re in… you all know who I’m talking about, and I’m not campaigning here… just pointing something out… this is no place for politics…

To recap… The currencies & metals enjoyed a day in the sun yesterday, but yesterday’s price action was in thin volume markets, and didn’t have any legs under it, as those gains made yesterday have been given back this morning. Germany had a successful albeit not exciting bond auction this morning, and the Fed announced that they would be making public their interest rate forecasts 4 times per year going forward.

Currencies today 1/4/12… American Style: A$ $1.0340, kiwi .7885, C$ .9870, euro 1.2990, sterling 1.5610, Swiss… $1.0655, … European Style: rand 8.1090, krone 5.9325, SEK 6.8430, forint 245. 50, zloty 3.4425, koruna 19.8065, RUB 31.79, yen 76.70, sing 1.2895, HKD 7.7685, INR 52.97, China 6.2940, pesos 13.69, BRL 1.8260, dollar index 79.97, Oil $102.56, 10-year 1.96%, Silver $29.16, and Gold… $1,599.15

That’s it for today… I made a mistake yesterday giving you the dates for the Orlando Money Show… the real dates are Feb 6 – 9… UGH! ( I guess I was just hoping to leave for Florida a weak earlier! HA!) Today would have been my dad’s 86th birthday… I I lost my dad way too early…
I actually slept all night last night, which hasn’t been the case recently… Even on vacation I found myself up in the middle of the night… the recent cold I had left me wheezing at night, which wakes me up (my beautiful bride can’t believe that wheezing wakes me up, and not my snoring! HA) But, I got through a full night last night, so maybe that’s all behind me now! My first day back yesterday, we had lunch from one of my all-time fave places for lunch… The Panera Bread Company, or Bread Co, as we call them… And with that… let’s get started on making this a Wonderful Wednesday!

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