In This Issue.

*  What just happened with the FOMC?
*  SNB introduces Negative deposit rates.
*  Rate differential currencies rally.
*  Koos Jansen speaks his mind.

And Now. Today's A Pfennig For Your Thoughts.

Patience My Dear, Patience.

Good Day!…  And a Tub Thumpin' Thursday to you! Well, yesterday's FOMC meeting was a  lot of hype for nothing, in my opinion that is. I got some more Christmas shopping done yesterday, it was a cold, but sunny day, so I could dump my coat in the car before going in malls and stores, which is always a plus, right? I've got a special thought today from my fave Gold researcher, Koos Jansen, and some thoughts from Brown Brothers & Harriman on Russia's ability to pay its debts.  (hint, here. no probs!) 

But first, a dear Pfennig reader sent me a link yesterday to a YouTube of the Celtic Woman singing O' Holy Night. I was overtaken with emotion hearing their voices, it was such a moving thing for me to hear. And so for those of you who would be interested in hearing this rendition, here is the link. It brought tears to my eyes, I hope you experience the same emotion.  click here:

Now for the real reason you open up this email each day, or whenever it is you do so. Or as my friend Chris Gaffney once told someone after I had given him the website to subscribe to the letter, Chris told them, “but you can always just delete it”.   I don't think I've ever really gotten over that.   But, the FOMC met yesterday, so let's go to the tape to see what happened.

Yesterday was all about the FOMC Meeting for sure, but guess what? They didn't just go cold turkey on dropping the stupid phrase, “considerable time”.  No, instead they thought it to be prudent to be patient with normalizing monetary policy.  Here's what they had to say, “we see this guidance as consistent with our previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of our asset purchase program in October.”  

Now I ask you, does this sound like anything changed? Not to me it didn't, but. apparently to the markets, because the dollar rallied, and the currencies & metals took one to the chin.  My momma said there'd be days like this, that's what my momma said.  Or. Momma told me not to come. That ain't the way to have fun, son.

Of course, I was gone (I AM supposed to be on vacation, you know) out shopping when this all took place, so I'm seeing it all upon arriving back home.  And quite frankly, I still don't give a damn!   This all sounds to me like the Bank of England (BOE) Gov. Mark Carney, and his bag of promises.  Which by the way, the latest BOE minutes show that there will be no rate hike coming in the U.K..   And I get to say.. “See I told you so!”  neener, neener, neener!

To further that discussion on the FOMC. I guess there was no need to pull a rabbit out of a hat, Bullwinkle.. And by that I mean there was no need for Fed St. Louis Pres. James Bullard to come riding in on his white horse, to save the day for stocks, since all the Fed did was talk about patience.  Stocks liked what they heard, and rallied, and there was no need to saddle up the white horse, this time.. Whoa boy!

The stocks jockeys loved what the FOMC had to say, but the currencies and metals didn't. It was a strange reaction, given that the FOMC didn't really say that they are hiking rates right now, or next month. Instead they left Pandora's Box of interest rate hikes cracked open in case they want to throw it wide open or just shut it again.  I was shocked by the reaction of the currencies and metals, thinking that all they had suffered from the thought that the Fed was ready to hike rates, had suffered a blow, but that didn't help them yesterday..

This morning, it's much of the same for the euro, and renminbi, BUT. The rest of the currencies are rallying back this morning, especially those currencies that currently enjoy a positive rate differential to the dollar, which had been whacked recently on the thoughts that if the U.S. hiked rates, the rate differentials would be narrowed. Well, that threat was removed, for now, and the currencies with positive rate differentials like Aussie dollars (A$), Brazilian real, S. African rand, Mexican peso, New Zealand dollar / kiwi, and Russian rubles.  That's right, I said Russian rubles, which are putting together a 2-day rally… It's been quite a move downward, and I think I have most of the reason for this 2-day rally covered below, so I won't ruin your appetite now with that.

Gold is actually up $15 this morning, but that's small bananas compared to the days when the price manipulators take a pound of flesh from the shiny metal's value!  Given all that's going on in the world, and add to that, the Fed telling us to be patient on rate hikes, which to me, is like them telling us, go away little girl, go away little girl, I'm not supposed to talking rate hikes with you. Add all the stuff together, sprinkle in some unbelievable physical demand, and we should have Gold moving higher so fast it would make your head spin! But NOOOOOOOOO!

And once again, what's up with Gold? I get it folks, it's no longer a matter of supply and demand for the shiny metal. For we all know that Demand is more powerful than a locomotive, and faster than a speeding bullet, and I think I know what Gold's kryptonite is. It's the dollar. But that's about all I'm allowed to say about that, otherwise it would be thought to be conspiracy stuff. I've given up conspiracy stuff for lent. HA!

The Big news this morning, well, there's two items that qualify, so let's give them equal billing. First, the Swiss National Bank (SNB) announced that they would implement negative deposit rates for the franc. The Swiss did this little trick with Nick to deposit rates back in the 1970's. A charge of 25 Basis Points on sight deposits, the cash-like deposits of Commercial Banks at the SNB, will begin being charged on Jan. 22. I told you earlier this week that the SNB was considering doing this, and at first take, the announcement of negative rates seemed to do the trick, as the euro/ franc cross rate rose to 1.21 (recall it was dangerously close (1.2009) to the floor of 1.20 yesterday), but guess what traders are doing now? They are moving the cross right back down the ladder and right now it's 1.2040. That's not as dangerous as it was yesterday, but it's also not as strong as it was after the announcement.  I think the traders are saying, “is that all you've got to defend the cross?”  And if the traders have the intestinal fortitude to combat the SNB on this, they'll take the cross right back to where it was yesterday, and demand that the SNB do more, like sell francs and buy euros.

The other BIG news this morning, is that there's a speech by Russian President, Putin, and in the speech Putin made it perfectly clear that he doesn't believe the Central Bank of Russia (CBR) should use reserves to defend the ruble. He also made mention of something that caught my attention. He stated that the U.S.'s military budget is 10 times that of Russia's. Now, I asked myself this. Self, why did he mention that at this time, was there some innuendo or secret message to that?   Oh well, I guess no one else seemed to see this as an interesting thing, but me!

A lot of the euro's problems started on Tuesday, went through yesterday, and is still on the minds of traders this morning, and that is. What is European Central Bank (ECB) President, Draghi, going to do? Is he going to risk HUGE ramifications of outflanking Germany with all-out Quantitative Easing?  Or is he going to wait-n-see what happens in the Eurozone economy?  You know me, I'm not there, so I don't know this for sure, but as much as I read and research about the ECB, I have my opinions that are at least educated, as opposed to most pundits that hear something or read it on the internet and go flying off the handle with stuff they know nothing about. And with that, I think what we have here is the ECB and Draghi, thinking that the ECB has built up a lot of credibility with the Bundesbank (Germany's Central Bank, and the Central Bank that the ECB was molded of) , and that may be enough to outflank them on this. (Germany and the Bundesbank have opposed all-out QE emphatically)

The markets are of the opinion, and I agree that Draghi will eventually make an attempt to run around the end, and it will end up very ugly for him and the ECB, and that won't be good for the euro. But then neither will implementation of all-out QE. So the best medicine for the euro is to simply walk away from QE. Mr. Draghi, do you think you have that ability to just walk away? And don't give me that stuff that kids say all the time, that Japan, the U.S. and U.K. all did it why can't he?  And I would say to him, just what I used to tell my kids when they would say “but all the other kids are doing it”, to that I would reply, “but don't you want to be better than the other kids?”  So, Mario Draghi, take your Italian charm, that is if you have any, I just assumed he had charm since he was Italian (I know that's not a good thing for me to say, but it was true!) and try to better than the other Central Banks.

We got word last night that normal relations with Cuba will return to the U.S. It's as the guys over at the Daily Reckoning ( called it: Cuba's Berlin Wall moment. And now Senator Marco Rubio is not a happy camper that the U.S. President is ready to restore normal relations with Castro.   just shows to go ya that you can't make all the people happy, all the time!

And in other breaking news from last night..  The U.S. concluded that N. Korea was behind the hacking of Sony. In case you missed it, Sony cancelled the premier of the movie “The Interview” which is a comedy about two dimwits going to N. Korea to assassinate the N. Korea leader.  

Well. My good friend, and colleague, Jack Stapleton, sent me a note of research that Brown Brothers and Harriman did on Russia, and I thought to myself, I just told a customer this morning that I didn't think Russia would have to default, and lo and behold, that's what this research is saying too!

Basically, the firm laid out the total reserves, including gold, which accounts to about 10% of total reserves, and then went through the debt servicing issues that Russia will see for the next two years, and there's no systemic failure seen there at all! I find this news to be very encouraging, folks. And somewhere down the road, once the sanctions are lifted, and the Saudis decide that the U.S. Oil Shale producers have suffered enough, and the price of Oil returns to higher levels, the ruble will get back to being a steadier currency. Now, Putin has stated that reserves shouldn't be used to defend the ruble, but that has no bearing whatsoever on paying debt servicing, so no worries for now with a systemic failure here folks.

But there's also a lesson to be learned here, and remember what I always say, that lessons learned are like bridges burned, you only need to cross them once.  Unfortunately, we never learn any of them and then we're attempting to cross over burned bridges!  But the lesson here, is that Russia's debt to GDP ratio is between 10 and 15%… the U.S.'s is 105%, and Koos Jansen will tell you later where Japan's is.  So, when hard times came to Russia, they had a treasure chest of reserves to fall back on. That's a good lesson for everyone.  In 1998, I was unceremoniously told to pack up my stuff and go home, at the old Mercantile Bank of St. Louis, my services were no longer needed. I had a 3 year old (Alex) One in college, (Dawn) and one about ready to graduate from H.S. and head to college (Andrew).  I was not given severance, I had to live on my savings until we got EverBank started.  What would have happened if there were no savings to fall back on?

Things obviously turned out for the best, as EverBank took off, and before I knew it, we were buying the old deposit book of foreign currencies and we never looked back!   So, thank you Mercantile for axing me when you did, although I didn't think that way in 1998.

Well, that was quite a story to tell on this Tub Thumpin' Thursday!  I know I've veered off track quite a bit this week, but remember. I'm on vacation, so I think I get that choice to talk about other things.   Tomorrow though, I'm hoping I can hand this off to Mike Meyer, for I have a long day planned, and the last thing I need is to have to wake up hours before the roosters!

And speaking of veering off. Well today's walk through the pictures brings me the picture that stares at me while I sit here. it's a picture that's about 15 or 16 years old, but it's a classic (to me that is).  The picture is of sons Andrew and Alex, sitting on the ground in our driveway, with their legs crossed (Indian style they call that) and they are both eating Kadoozie popsicles and Alex is looking up at his big brother, with this look of admiration, and reverence for his Big Brother. I wish I could share the picture with you, because my description of this look on Alex's face is priceless, and I don't think I nailed the description correctly.   To think that as they both got older they became so close. Alex was Andrew's best man at his wedding, and so on. All families should have kids that truly enjoy being with each other like mine do..

One of the changes for 2015, there are going to be plenty, but this one I can tell you about, is that the Pfennig will eventually be changed from just text, to HTML format, where I'll be able to include pictures, graphs, stuff like that. I know, I know, other newsletters have been doing that stuff for eons now, what's taken the Pfennig so long to change? Me.  I resisted changing the text format.  I always thought that Pfennig Readers just wanted a 5 minute walk through what Chuck was talking about that day, and be done with it. But the success of our Pfennig Blog, changed my mind. So. maybe, this picture of Alex and Andrew will make it in the Pfennig next year!

The U.S. Data Cupboard has the usual Tub Thumpin' Thursday fare of Weekly Initial Jobless Claims, but will also have the leading Index for November. this data has picked up a bit lately, which is surprising to me, and then just about every data print surprises me these days, for there is no fundamental reasons for the data to print like it does.  For instance, last week, I said Retail Sales would be better than previous months, but I was shocked at how strong they printed, but when you open up the hood and look inside the data, you find that the data was distorted with seasonal adjustments for Gas prices and sales.  

John Williams of had this to say about the gas sales that the BLS reported. “

 If Recent Retail Sales and CPI Reporting Are to Be Believed, Consumers Have Used the Bulk of Gasoline-Price Savings to Buy More Gasoline”

So, as I've said for a while now, I'm raising the white flag on data prints, and trying to walk away from them, but the markets just keep dragging me back, sort of like when I sit on the beach in Florida, people walking by want to keep dragging me back to the water! HA!

For What It's Worth. As promised. See I deliver on my promises, as opposed to Mark Carney! But here's Koos Jansen, who I follow on Google+, and his full article was posted on, and you can find it here, which I might add, you'll get the opinion of Koos that I can't give you any longer.

I really think you should read his full article.  But here's a snippet if you can't get to it.

“Much like the gold market, supply and demand fundamentals are completely ignored as the pricing of gold revolves around the dollar. Countries such as Russia understand fully that this dynamic of dollar dominance leaves them very vulnerable to shocks. The same is true of all resource rich countries. While some of them see the US as an ally and go along with this, Saudi being the obvious one, the Russian's have made it clear they want change. Make no mistake about it the Russian's will get the change they desire.

Let me explain the previous sentence. Russian debt to GDP is roughly 14%. Their debt to GDP is pristine. Japan's is 227%, Greece 175%, Italy 132%, and the US 105%. Now can someone kindly explain why a currency would implode like the Ruble when their financial condition relative to the West and Japan looks like a Ferrari among a bunch of Ford Pintos? You could argue that they are highly dependent on oil. True, but so are other nations and are you certain oil will remain this low for an extended period?”

Chuck again. I'm listening to the Celtic Woman concert in Dublin for Christmas 2013 right now, how in the world could I have any bad thoughts about how the ruble is being treated, or any snarky, smart-alec remarks with those beautiful voices singing Christmas songs to me?

To recap.  Well, the FOMC said we should be patient with rate hikes, and thus the currencies with rate differentials are rallying today, and the currencies that don't have a rate differential are finding it difficult to gain traction, but gain it they are in tiny bits. Gold is up $15 this morning as I write, but after getting whacked earlier this week, it just doesn't seem to be enough in my opinion. SNB announces negative deposit rate at the Central Bank, and the euro / franc cross improves, but now is coming back.. Putin says the U.S. military budget is 10 times that of Russia, why did he mention that?  And BBH tells us that Russian has plenty of reserves to pay off bond servicing for the next two years, surely something will happen to get things back to normal by then, eh?

Currencies today 12/19/14. American Style: A$ .8185, kiwi .7750, C$ .8625, euro 1.2305, sterling 1.5645, Swiss $1.0215,  . European Style: rand 11.5575, krone 7.3695, SEK 7.6610, forint 255.45, zloty 3.4475, koruna 22.4365, RUB 60.90, yen 118.80, sing 1.3130, HKD 7.7570, INR 63.11, China 6.1195, pesos 14.49, BRL 2.5785, Dollar Index 88.95, Oil $58.14, 10-year 2.17%, Silver $16.08, Platinum $ 1,209.75, Palladium $788.25, and Gold. $1,204.37

That's it for today.  I won't be writing tomorrow, so I'll get this in today. A great BIG Happy Birthday to our colleague, and soccer legend, Ty Keough tomorrow. Ty is a south side St. Louis kid that played on national champion teams at St. Louis University, for his legendary dad, and then went on to play on the U.S. national team, that didn't get to play in the Olympics when Carter boycotted them (remember that?)  Then he went on to have a long professional career playing both indoor and outdoor soccer. He still plays in over 50 tournaments, and then limps into work the next week! So. Happy Birthday Ty, I hope you get a “kick” out of your day! Tomorrow is an annual tradition for my buddies. Every year we go “shopping” together, wink, wink. we hire a cab to drive us around all day, sort of like a pub-crawl, but we don't walk anywhere!  It's always a fun-filled day. And tonight, the boys and girls on the trading desk are meeting for a holiday happy hour, so I get to see them again before Christmas!

And brother did I feel bad yesterday when mentioning books on my desk, how could I have not mentioned this one?  My only excuse is it's dark down here when I'm writing in the morning! But the other book on my desk is: Retirement Reboot, by my good friend: Dennis Miller..  UGH! Sometimes I'm such a dolt!  Alex is following in his brother's footsteps. He's coaching the 8th grade Water Polo team in the Lindbergh School District. WOW! Good for him, if there's one thing I got across to first Andrew, and now Alex, it was when they hang up their athletic careers, give something back to the sport they loved.. Coach, officiate, keep score, whatever, but give back to the sport. And they are!   It's the 18th of December, only 7 more days till Christmas! Are you ready? Yes, I'm ready! Now, let's go out and make this a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets