And the currencies seem to be recovering this morning too, from the recent go around in the ring with the risk aversion campers. The currencies (except yen), were last seen yesterday up against the rope, doing their best imitation of the rope-a-dope.

But… This morning… The markets are just giddy about two pieces of data from Europe… First, German Investor Confidence as measured by the think tank, ZEW, beat the forecasts, and came in at the highest level in 3 years! That’s right, not since 2006, as German Investor Confidence been this high… For those of you keeping score at home… The Confidence Index number soared to 56.1 from 39.5 the previous month! WOW!

Last week, I told you how the German GDP had posted a positive number, and therefore the economy had exited the recession. I don’t believe the German economy to be “out of the woods” yet though… There are still things that go bump in the night that could very well drag the economic growth down… But for now… The Eurozone’s largest economy is basking in the sun of not only exiting a recession but a strong Investor Confidence report.

The other piece of data that has the risk takers fighting back for ground that was lost last week, was the U.K. inflation data that printed at 1.8%… Now, that sounds pretty low right? Well… You might recall that the Bank of England (BOE) had forecast a fall to 1% of inflation in the 3rd QTR… The other thing that makes 1.8% more robust than it looks is that the BOE has an inflation target of 2%, so… It’s knocking at the door of 2%, eh? Can you hear me knocking? On the window… Can’t you hear me knocking? On the door…

So… As I said it “seems” that the currencies are fighting back… But the move has been smallish in nature, but at least the euro has gained back the 1.41 handle, and the Aussie dollar has gained back the 82-cent handle, and so on, and so on…

The TIC’s data for June that printed yesterday was quite strong… For Long-Term Treasuries, that is… The short end got ambushed and was so weak that the positive for the Long-Term Treasuries was wiped out by the selling on the short end…

This probably all those people that bought short term T-Bills last year in what they thought was a “flight to safety”… I’m sure they exited with some red in the numbers… They basically gave the Gov’t a loan, paid the Gov’t for that loan, and lost money… Great “flight to safety” I’d say… NOT! Safe Haven? What Safe Haven?…

There’s no information right now about what games the Gov’t played in these figures… I think that for now though we can believe in our heart of hearts that they are playing games, which means the question at heart is… When the Fed winds down their buying of Treasuries, what happens to yields… And in turn what happens to borrowing costs… And finally the economy. My opinion? It won’t be pretty… But neither will the monetizing of debt that the Fed keeps performing… So, it’s a case of pick your poison… I would prefer the quantitative easing / monetizing of debt to stop, and let’s take our lumps on the economy that the Gov’t has been so hell-bent in attempting to stop… Get it over with, and live to see another day, rather than prolonging all this bad stuff…

For instance, last week, I read an article that talked about how the Big Banks are still in trouble… That just stinks! See what I’m talking about here? If they had been told to close their doors a year ago, we would be probably be pulling our selves out from that mess now… But nooooooooo! Instead the Gov’t spent hundreds of Billions of dollars to prop them up, and a year later, they still have problems! That just stinks!

So far this year, and I know, these aren’t the Big Banks, but ones that have caused significant damage to the funds of the FDIC, there has been 77 banks close… 77 Banks folks! One of the banks that closed was sold to another bank, but with the Gov’t guaranteeing that the buying bank didn’t experience any losses… Well, that would be a big wouldn’t it? If the closed bank didn’t have losses, it wouldn’t be getting closed! My friend and excellent writer, David Galland, had this to say about these back door deals for closed banks…

“Note that bit about the government “agreeing to shield acquirers from certain losses on assets of the failed bank.” This sort of guarantee has become a popular backdoor way for the government to deal with various elements of this crisis, without the more overt method of writing a check to cover losses or, heavens forbid, actually letting the equity holders bear the brunt for having made a bad investment in a poorly run bank.

Instead, the government jiggers things to hand off the good assets of a bad bank to one of their buddies, while agreeing to shift the liability for the poor assets onto the backs of taxpayers – with the IOU due and payable at some point down the road.”

OK… Back to me… I would not want to go on from that last note without mentioning that EverBank who sponsors this letter, and is my employer, which is not taken lightly, is enjoying a very good run of deposit growth and earnings growth. We just posted the 2nd QTR numbers, and I’ll have them to give to you, as soon as the marketing people give me the details. I understand that they are quite good, once again!

The other piece of data that printed yesterday was the NAHB Housing Market Index, which printed a digit higher than the July print of 17… So, 18 is the index number, what does that mean to us? Well, first of all, the Index represents a survey of Home Builders of Single-Family detached homes, and is comprised of three surveys… 1. Present Sales 2. 6-month expectations 3. traffic of buyers. The index has a range between 1 and 100, with 1 being bad, and 100 being excellent… A figure above 50, suggests that survey participants are seeing good economic conditions for Home Sales.

So… Now that we’ve learned that in class today, who can tell me what an index reading of 18 represents? You, over there in the corner, please take the IPOD ear-phones out of your ears and answer the question! Yes… It means we have a LOOOOOOOONNNNNNGGGGG time to go before we get back to 50…

Today we’ll see Housing Starts data for July… And Building Permits for July… These too will probably show a small uptick in activity, but nothing close to what it should be. And… Let’s also keep in mind that the problem we have with Housing in this country is that we have a GLUT of inventory, and it continues to grow, given the record number of foreclosures that I talked about last week… So, what good does it do to have these two pieces of data print strong? Sure, somehow the builders are finding the money to keep building and employing people, but, I just don’t see why that’s a good thing overall… Given… The glut of inventory.

I just wanted to recap what we’ve seen in the past week… A very weak Retail Sales figure, that was supposed to be inflated with the Cars for Clunkers program sales, and was not! And we saw a huge drop in Consumer Confidence… No wonder stocks have taken it on the chin the last two trading days… And… You have to wonder where all those economists are now that claimed last week that the recession had ended! Ended? Over? It’s not over until we say it’s over!

Speaking of foreclosures… I would have to think that these days, these days I sit and think about all the things that I forgot to do, for you… No wait! I have no idea where that came from, well actually I do know who sang it, but I mean that I would just start typing that! UGH! Runaway fat fingers! Any way… I do think that these days, all those unemployed people that were losing their jobs all winter and spring are now having problems… That’s a sad thing, folks… Something that might have been at least delayed with savings… But, recall back to before this financial crisis began, savings rates in the U.S. had gone negative! That’s sad too… But has been turned around now that everyone sees how important it is to have a war chest of savings… Let’s hope we don’t ever get to the negative savings rate again!

At home, I use ATT-U-Verse which means my news when I log on, comes from YAHOO! Last night I logged in, and saw this on the front page of news items… So… I just had to click into it to see what it was all about…

“A USA TODAY/Gallup poll found that 57% of Americans think President Barack Obama’s economic stimulus either had no impact on the recession or made it worse, while 41% said the spending was good for the economy. More than three-quarters said they are “somewhat worried” or “very worried” that some of the stimulus money is being wasted.”

Hmmm…. Maybe there are more Pfennig readers out there than I imagined! Now, we need to make the other 41% see the error of their thinking, and get them to diversify a portion of their investment portfolio out of the dollar, and into the asset classes of currencies and metals!

And with that note… I think I’ll head to the Big Finish! No wait! I wanted to mention that the threat of hurricanes in the Gulf have pushed the price of Oil higher, and will continue to have an affect on Black Gold’s price!

Currencies today 8/18/09: A$ .8240, kiwi .6710, C$ .9050, euro 1.4120, sterling 1.6560, Swiss .9280, rand 8.05, krone 6.1410, SEK 7.26, forint 193.10, zloty 2.9525, koruna 18.14, yen 95, sing 1.45, HKD 7.7515, INR 48.75, China 6.8338, pesos 12.94, BRL 1.88, dollar index 79.18, Oil $67.75, 10-yr 3.50%, Silver $14.08, and Gold… $938

That’s it for today… My little buddy, Alex, has his first day of school today… He’s in the 8th grade this year… My, time has flown since he was just starting school! When I was a kid, we didn’t start school until after Labor Day… I remind him and my two other children that are both teachers, of that whenever August rolls around! My beloved Cardinals won a big game last night in Los Angeles… Of course I’m in bed sleeping by the time the 1st pitch is thrown! Keep it going, Cardinals… Just keep it going… I’m very glad that I was able to get in to a good orthopedic doctor and get that shot as quickly as I did… I wonder how long I would have had to wait, no… Never mind I’m not going there! It’s time to hit send… So… Let’s get going on that Terrific Tuesday!

Source: German Investor Confidence Soars!

The euro has received some additional love this morning, as the Eurozone’s economic growth printed better than expected, albeit still negative… But… Germany and France showed growth, which I must say is very unexpected! That means that both Germany and France have exited the recession… Well, that is at least for now! For those of you keeping score at home, Eurozone GDP fell -.1%, which is far better than the -.5% that was expected… Oh! And this is for the 2nd QTR… You would have to think that data like this would be very good for the euro, and from the looks of it, that’s exactly what’s happening!

Whenever the Big Dog, (euro) gets off the porch to chase the dollar down the street, all the little dogs get to chase too… And so, the usual suspects have posted gains since yesterday morning, like Norway, Switzerland, Aussie and so on…

The BIG news yesterday was from the FOMC meeting, where the Fed Heads left rates at near zero, but were kind enough to tell us that their Quantitative Easing would remain in place through October… That’s all nice and sweet, eh? So… What, are they going to do here, Buy some Treasuries out in the open and say see we told you we were going to do this, and then go back to the dark, smokey room and buy some more from the Primary Dealers just for GP? That just ticks me off! But there’s not a darn thing I can do to stop them!

What I would like to do is to start a movement to abolish the Fed… OK, who’s with me? I just had a chuckle, because that reminded me of the Will Ferrell Old School movie when he’s trying to get people to streak to the commons… Come on now, if you’ve seen that movie, you know you’re laughing right now!

I had a guy one time tell me, I know of no one that can talk serious one minute and go right into some funny thought, sing a song, or whatever the opposite reaction would be to the serious thought, like you do, Chuck… I thanked him!

But getting back to the thought of abolishing the Fed… Think about this for a minute… What good are they? Have we not had dozens of recession and one Great Depression since they were created? Have we not seen a 95% loss of purchasing power for the dollar since they were created? Let me tell you something else, folks… If the markets set the interest rates based on activity, we would never experience inflation or deflation…

OK, I’ll stop there, I know that I’ve ticked off a few people that think the Fed walks on water, and is here to protect us financially…

Well… In news you won’t hear on radio or TV… The U.S. Budget Deficit swelled to $180.7 Billion in July, from $102.8 Billion in June… Hmmm… Think about that for a minute folks… In June, when quarterly tax receipts should be enough to cover the expenditures, they not only were not enough, but they fell short by $180.7 Billion dollars! This is a combination of slower tax receipts because of the depression were in, and… The unsustainable deficit spending by the Gov’t. Oh! And the Budget Deficit year to date is now $1.27 Trillion… But you don’t see the knuckleheads in Washington D.C. doing anything about it, except for coming up with new things to spend more money on… I say fire them all!

Speaking of tax receipts… My friend, and writer & Marketing genius extraordinaire, David Galland, had this to say recently in one of his most excellent news letters… Here’s David…

“I like the idea of also forcing the government to stop automatically withdrawing taxes from paychecks. Instead, wage earners would be responsible for sending out their tax payments on a monthly basis. By my back-of-the-envelope calculations, it would take about two months of writing out the big checks to Uncle Sam before people came to grips with just what government (or, in this case, one slice of government) is actually costing them… and out would come the pitchforks. We cannot afford our current level of government, and the sooner we get around to cutting it back, the better. Period.” — Thanks David… As always you think on a different level than the rest of us!

The Trade Deficit also grew larger in July as Oil prices rose… The Trade Deficit moved to $27 Billion from $26 Billion… Now, the Trade Deficit is much smaller than it used to be thanks to the depression, but, the fact remains that it is still nipping at the heals of the dollar like one of those small dogs, and whenever it is that the U.S. comes out of this depression, this figure will balloon once again…

Today’s data will be dominated by Retail Sales for July, which because of the CARS program, will be stronger than usual, probably getting quite close to a positive 1% for the month… Less Autos, the data would be quite disappointing at just .1%, but, you know me… I don’t like that taking this, that and the other thing out just so things look the way you want them to look!

It’s also a Thursday, so the Weekly Initial Jobless Claims will also print. Recall that on Monday of this week I told you the data would get going again this week? Well, we’ve got it going on today for sure!

Yesterday, Norway’s Norges Bank met, and while they left rates unchanged, they became the first Central Bank to move to a tightening bias! YAHOO! And the krone was the best performing currency yesterday and overnight on that news, as it should! Long time readers know my affection for the krone due to a number of reasons, but none so important than the fact that Norway has a financial surplus, has had one, has one, and will have one for as long as I can see… Norway didn’t get involved in the sub-prime bond buying game… And they have a very strong Central Bank in the Norges Bank… Last spring, the NY Times, which I don’t read for a number of reasons, but had this sent to me, called the Norwegian krone the safest currency in the world. Now… I like it when someone other than me climbs out on that limb, especially if your going to climb that far out!

Tonight, the Gov. of the Reserve Bank of Australia (RBA), Stevens will provide a testimony to the Parliament regarding the economy, etc. I think that the A$ traders are holding their breath until he speaks, as this could be a real market moving speech! But then it could also be as dull as watching paint dry…

The A$ is back above 84-cents after spending a couple of days down in the 82-cent handle…

OK… So… We had good news from Germany, France and Norway this morning… Not so good news from the U.S. though…

Realty Trac Inc. is reporting this morning that a total of 360,149 properties received a default or auction notice or were seized last month. UGH! Foreclosure filings in the U.S. climbed to a record for the third time in five months in July. All those jobs that were cut and still being cut, are having a real negative affect on this, and personally, I don’t see this getting any better any time soon! UGH!

There’s been a lot of talk about the news the other day that China’s loan growth had seen a huge fall last month… A lot of people think that this is the end of China’s growth… I see it differently… I see it as China just taking some air out of the balloon… They saw their economy moving ahead of the rest of the world at a very fast pace, and didn’t want it to: 1. overheat, and 2. Have nowhere to go with everyone else in recession… Now, I’m sure a lot of you will say, Chuck… Doesn’t China risk the chance of popping their economic bubble altogether? Well… Yes, they do… But, they knew how to administer stimulus to make the economy click, I assume they know how to pull some if back when they need to…

And… I just think about the fact that since 2003, I’ve seen story after story by writers that thought they knew what was happening in China, say the economic growth was going to slow down… And they were WRONG!

And with that thought… No wait! I’ve got another thing from David Galland… He said that Dan Ferris sent this to him… “Members of Congress should be compelled to wear uniforms just like NASCAR drivers, so we can identify their corporate sponsors.” yeah, right on! Now that’s change that’s really change!

Currencies today 8/13/09: A$ .8440, kiwi .6795, C$ .9245, euro 1.4275, sterling 1.6625, Swiss .9315, rand 7.9675, krone 6.0220, SEK 7.1475, forint 188, zloty 2.88, koruna 18, yen 96.20, sing 1.4415, HKD 7.7515, INR 48.10, China 6.8337, pesos 12.84, BRL 1.8385, dollar index 78.50, Oil $71.64, 10-yr 3.73%, Silver $15, and Gold… $957.15

That’s it for today… I had a long time reader send me a note yesterday and tell me that I have enough to worry about with the Fed, Treasury, deficits, etc. and shouldn’t get worked up when the Cardinals lose a game they should have won… HA! Yes, that’s correct! It is just a game… And yes, I’m talking about baseball, not the Fed, Treasury and deficits! HA! Well… I go to the knee doctor today, I’m afraid of what he’s going to find… All I know, is that the pain, swelling and stiffness is much worse in this knee than it was in the right knee that I had scoped in 2003! UGH! My little buddy, Alex is home. He seemed to have grown 6 inches while at camp! OK… I must really be running late, as Mike, Suzy Q, and Mary are all here! So… Get that Tub Thumpin’ Thursday going!

Source: Germany & France Exit The Recession

WTO Director General Pascal Lamy, told Reuters Television:

That’s the situation and I’m afraid I can’t read any good news in my trade numbers.

This news doesn’t bode well for any type of recovery. “Jobs picture turns gloomier” say the headlines. The U.S. unemployment rate officially popped up to 9.5% as nonfarm payrolls shed 467,000 jobs in June. The market is tanking today on this “brown shoot”… But the real story is far worse. And as reality seeps into the empty head of Joe Investor it could spell the end for the post-2008 wipe-out sucker’s rally…

As James Davidson points out in Crisis Strategy Alert, the BLS numbers have been massaged, manipulated, and contorted into giving only half the story. He says,

To get a real picture of the current unemployment levels you need to focus on the grossly underreported U-6 data set known as “alternative measures of labor utilization.” The U-6 data set includes everyone counted in U-3, plus “all marginally attached workers” and people who aren’t working full-time but wish they were (i.e., the underemployed). (Marginally employed covers “persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.)

When you add up U-3 and all the underutilized workers, the official U-6 rate for May 2009 is 16.4%. In other words, the employment picture is twice as bad 14 months after the recent peak as it was in December 1930, 18 months after the peak prior to the Great Depression.

But this surge in people lining up for welfare isn’t limited to the US either. According to the BBC, unemployment in the eurozone also jumped to 9.5%.  Leading the charge is Spain with 18.7% unemployment, while the liberal Dutch are experiencing a mere 3.2%.  Martin van Vliet an economist at ING on the new numbers:

May’s sharp increase in eurozone unemployment demonstrates that the ‘green shoots of recovery’ are not yet showing up in the labour market.

Ireland looks like the next eurozone nation to bite the dust. Our Irish editor, Chris Hunter, is taking holiday in Dublin right now.  In an ode to his arrival, Moody’s slashed Ireland’s debt rating from AAA to AA1.  Dietmar Hornung of Moody’s Sovereign Risk Group had this to say in news release:

The pronounced weakness in the economic activity has been translating into a severe deterioration of Ireland’s public finances, and the country is set to emerge from the current economic crisis with a considerably higher debt burden for the foreseeable future.

Moody’s is the last large agency to cut Ireland’s credit rating.  Fitch and Standard & Poors cut it earlier this year citing soaring public debt and a negative economic outlook.  As Irish GDP continues to contract, we expect further cuts in Ireland’s bleak future.

Yes dear reader the next leg down in this Greater Depression is not far off. The textbook sucker’s rally is losing steam. Take profits and buckle up because the second half of this year could test the March lows. If that were to happen, or even anything close it would be devastating to investor sentiment. Most “investors” have never seen a prolonged bear market, they wouldn’t recognize it or know what to do.  But one thing they will do is flee to cash.

In the short-term, we here are Notes are bullish on the dollar for this reason. Long-term of course we think the buck is doomed. But woe to those who go against the dollar too early. We think that James Davidson is doing all the right things to capture short-term dollar strength while hedging against long-term weakness with the Crisis Strategy Alert portfolio, click here to learn more about what he’s doing…

In its annual Global Development Finance (GDF) report, the World Bank warned that recovery is “unusually uncertain” and that it expects the global economy to contract by 2.9% this year. The World Bank said as recently as March that the global economy would shrink by 1.7% in 2009.

“While the global economy is projected to begin expanding once again in the second half of 2009, the recovery is expected to be much more subdued than might normally be the case,” the bank said in its report. “Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world’s poor.”

In the United States, where the unemployment rate is approaching double-digits, the economy is now expected to shrink by 3% this year, rather than the 2.4% the World Bank predicted in March. This is more consistent with U.S. Federal Reserve Chairman Ben S. Bernanke’s warning of a “jobless recovery.”

The World Bank said the Eurozone is now facing an economic contraction of 4.5% after previously predicting a 2.7% decline. Japan’s economy will shrink by as much as 6.8% this year, up from 5.3% contraction it predicted three months ago.

The world’s second-largest economy has been leveled by a sharp drop in exports and soaring unemployment, as evidenced by an annualized 15.2% drop in first-quarter gross domestic product (GDP).

Developing countries will still see growth in 2009, although it is likely to come at a much slower pace. Developing economies will grow by 1.2% on the whole, compared to a 5.9% expansion in 2008 and 8.1% growth in 2007. China and India will be the major growth engines of the developing world, expanding 7.2% and 5.1% respectively. Without these two dynamic economies developing nations would actually contract 1.6% according to World Bank projections.

The economies of Brazil and Russia, which rely heavily on commodities prices, are expected to shrink 1.1% and 7.5% respectively.

While the World Bank expects global growth will rebound to 2% in 2010 and 3.2% by 2011, growth in developing nations will be higher. The bank sees 4.4% growth in emerging markets in 2010 and 5.7% in 2011.

The World Bank’s revelation helped temper some of the optimism that has fueled the recent stock market rally. U.S. stocks suffered their first weekly loss since May last week, and both the Dow Jones Industrial Average and Standard & Poor’s 500 Index logged heavy losses yesterday.  The Dow closed down 201.3 points, or 2.35%, at 8338.7 and the S&P tumbled 28.17 points, or 3.06%, to close at 893.05.

Source: World Bank’s Pessimistic Prognosis Tempers Market Enthusiasm

Wait…scratch that…make it negative 2.9%.

Somebody must have slipped a few Rude pages to the honchos over at The World Bank. It seems the Washington-based lender is hedging its bets. A 2.9% contraction in the global economy this year is a far cry from its March estimate of 1.7%. But growth will be back to 2% next year, the bank assures us, slightly down from the 2.3% they originally expected.

What went wrong during the springtime, we wonder? Didn’t unprecedented levels of stimulus flow from government taps around the world? Weren’t Bernanke and Geithner manning the pumps? Didn’t the global media confirm sightings of green shoots? Or were they recovery saplings? Your editors were too busy “calling B.S.” to keep up with all those flowery euphemisms for delusion. Still, shouldn’t we be smelling the turnaround tulips by now, on our way back towards bull market springs?

Not just yet, says the bank of the world. The following adjustments must be made to the March forecast:

• Output in the U.S. will drop by 3%…not 2.4%,
• Japan’s gross domestic product will shrink 6.8%…not 5.3%.
• The Eurozone will have it a bit tougher too, contracting 4.5%…not 2.7%.
• And the globe as a whole? Uh…eh…it won’t decline 6.1%, as predicted. Better expect closer to 9.7%.

The lender also called for “bold” actions to hasten a rebound (an urgency upgrade from “tough” actions) and said the prospects for securing aid for the poorest countries were “bleak” (adjective upgraded from “slim”).

Does that mean the “delude-a-bulls” are spent? Is the sucker’s rally over? Insiders seem to reckon so. Bloomberg reports that, “Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.”

Worldwide markets did enjoy a pretty nice rally over the past couple of months. Perhaps that’s the end of the first suckers’ rally. Maybe last week’s 3% mini-selloff on Wall Street was only a harbinger of things to come.

Personally, we wouldn’t expect any hope of a sustainable turnaround until The World Bank downgrades its forecast from “bleak” to at least “apocalyptic.”

Joel’s Note: Our annual Agora Financial Investment Symposium in Vancouver, British Columbia is rapidly approaching…and this year marks the 10th anniversary of The Daily Reckoning. So, this July, the Symposium will be focused around a “Decade of Reckoning”…four days that will help you to gain greater insight on how to turn investment ideas into the profit opportunities of the next decade.

So, will we be seeing you there? This event is already 70% sold out, so you’ll want to be nimble. Click below for all the info:

The Agora Financial Investment Symposium: July 21-24

Source: World Bank: Whoops!

Front and center this morning, I’m as proud as a peacock this morning. I just read an email from good friend, and excellent market analyst, Mary Anne Aden… Mary Anne sent me a note letting me know that the one and only Richard Russell had quoted me in his letter June 10th… She said it went something like…”this is from Chuck Butler’s always terrific column…” WOW! Being quoted in Richard Russell’s letter is like the top of the list for me!

OK, Chuck, you have to come down from cloud 9… Hey You, get off of my cloud! Even the fact that the currencies and commodities have sold off in the overnight markets can’t stop me from this seashells and balloons feeling…

Yes… The currencies and commodities have sold off in the overnight markets… Even a good print by Germany’s think tank IFO on Business Confidence, hasn’t wrapped a tourniquet around this sell off… This wasn’t a “one and done” for Business Confidence in Germany either! This happens to be the third consecutive month of positive gains for this data. Now… One would think that this should signal something, right? I mean, if I walked up to you on the street and said, “Germany’s Business Confidence has posted positive gains for 3 consecutive months”… You would probably, no wait, definitely think (because I know you are very astute, and pay attention in class each day), that Germany’s economy must be coming out of their recession… Hmmm… Yes, that’s what I would think too! But… The euro isn’t showing any thoughts by traders like that!

I think that in the next print of GDP in Germany (the Eurozone’s largest economy), we’ll see a nice improvement from the previous quarter’s negative -6.7% decline! I’m not thinking that GDP will go to a positive print… But if it knocks out half of that decline, that would show that things are improving… And if things are improving in Germany, the rest of the Eurozone will grad on to the coat tails!

The U.S. Fed meets this week, in an otherwise quiet week data, and talks, and we’ll have to see what’s up Big Ben’s sleeve now… I would suspect that this week will be a non-event… But in August, the Fed will most likely be setting off some late fireworks, with an increase in their bond buying program… Quantitative Easing… UGH! And that thought leads me talk about the amount of supply hitting the markets in the near future… But I wont’ bore you with my description of the supply… Here are my friends, Addison Wiggin and Ian Mathias…

My friends, Ian Mathias and Addison Wiggin over at the 5-Minute Forecast, never cease to amaze me the way they describe things! Here’s a piece of their letter from Friday, June 19th…

“The U.S. government announced yesterday it will auction a record $104 billion in debt next week. Despite obvious warning signs that the world has had its fill of American paper, the Treasury will forge ahead: $40 billion in 2-years Tuesday, $37 billion in 5-year notes Wednesday and $27 billion in 7-year garbage on Thursday.

They must “get it.” Last week’s sharp rise in 10-year yields was as sure a sign as any that investors everywhere are getting cold feet. A prudent government would take a break… let things cool off. But there’s no rest for Uncle Sam, or his Treasury. They’ve got the mother of all Ponzi schemes to run:”

I’ll get to meet up with Ian and Addison next month in Vancouver… I’m looking forward to that!

So… Like I said, the data is pretty weak this week… So, we’ll be scratching and clawing for the markets to throw us bone.

Down Under… The Aussie dollar (A$) has taken on some water overnight after a story printed and quoted the Morning Herald’s economic editor… The quote went something like this… “the market was wrong in discounting little to no chance of another RBA cut this year, and a high chance of a hike in the first few months of next year” …

You might recall last week I told you that the market in Australia had basically decided that the Reserve Bank of Australia (RBA) had come to an end of their rate cut cycle… I then threw in my own 2-cents and said that the first rate hike would come in the 1st QTR next year… Well, the Economics Editor at the Morning Herald doesn’t agree… And the A$ has sold off big time since the paper hit the news stands! Come on! That’s just one person’s opinion, isn’t it? Last week, the market players were all about the end of rate cuts… And they are now going to be swayed by one opinion? Where’s the intestinal fortitude?

And then there was this… Not happy with having their heavy hand in just about everything these days… The Fed is reviewing the Repo market… Apparently, the poor old Repo market is getting blamed for exacerbating the financial turmoil that followed the collapse of Lehman Brothers last fall. For those of you not familiar with this market… It’s a utility for overnight funding… (some go longer than overnight, but the overnight repo and rev repo market is what is being reviewed) So… Look for more Gov’t. reforms in a market that has existed for many years just fine and dandy…

I’m going to stop there this morning, as I forgot to print a “Corporate feel good story” on Friday, I will do so today… So, look for that after the “that’s it for today” segment…

But… First, speaking of feel good stories… I saw this flash across the screens this morning… New York Times reporter David Rohde, who disappeared in Afghanistan in November 2008, has escaped from his Taliban kidnappers and is under U.S. military protection…. Cool, eh?

Currencies today 6/22/09: A$ .7960, kiwi .6350, C$ .8745, euro 1.3845, sterling 1.6440, Swiss .9190, rand 8.1575, krone 6.4950, SEK 8.00, forint 201.65, zloty 3.2575, koruna 18.80, yen 96, sing 1.4580, HKD 7.7503, INR 48.59, China 6.8355, pesos 13.42, BRL 1.9750, dollar index 80.75, Oil $68.30 (this has really backed off the past couple of days!), 10-year 3.73, Silver $13.88, and Gold… $925.35

That’s it for today… My little buddy, Alex, and I were on our own for part of the weekend, and we did just fine! Last week, I bought a used Bass Guitar, and now I can add some bass to Alex’s guitar playing… It’s fun! The two of us, “jamming” in the basement! All we need is drummer, so people can feel a beat, yeah….. HA! It’s alive! It’s alive! My beloved Cardinals actually had their offense come alive this past week… A nice weekend sweep of the cross state Royals, was sweet! I just heard on the radio that the “heat index” could hit 110 today here in St. Louis! My mind immediately flashes back to when I was a kid, and we didn’t have air conditioning! Then we got one that cooled one room… I had 6 siblings so the 9 of us would all sleep in that one room! We were NOT allowed to go in that room during the day! And look! We survived! HA! OK, thanks for going with me on the trip down memory lane… Time to go to the Corporate Feel Good Story… I hope you have a Marvelous Monday!

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I have my own business, working out of my home, representing a small agency called Markle & Associates here in the Pacific Northwest. We represent six wool carpeting mills and a bamboo and hardwood importer. And because our products are “green”, environmentally friendly, we do have an edge over the synthetic products and anything tied to petroleum. But nevertheless, we have still been affected by the economic downturn. What I’ve found to keep the business coming is a simple tool we all know about: networking. Years ago I heard a statement about the success of networking that said it was the single most powerful way to increase business. Faster results than advertising, and cheaper than any other marketing attempt.

So, I’ve made that my thrust over the years and make sure I stay involved in my industry organizations, participate in meetings on the chapter and national levels and volunteer for positions to help these organizations grow. In my industry, it meant remaining connected over the years with design organizations like NKBA (National Kitchen & Bath Association), NWSID, (Northwest Society of Interior Designers), American Society of Interior Designers (ASID) and International Interior Design Association (IIDA). The reason networking works is because people buy from people, rather than simply from businesses. Learning that key has helped my business to keep going in diverse economic climates, including this one.
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Source: Currencies and Commodities Sell Off

Good day… And a Terrific Tuesday to you! Thundering storms moved through here this morning, as I was preparing to leave home and drive to the office. As slow as I am with getting around these days, I got pretty wet from my car to the office building. But, I didn’t melt, as most would have thought! HA! And, I’ll dry out soon enough… Well before anyone else comes in!

OK… Well… When I left you yesterday, the dollar was on a rampage, from the comments by the Russian Finance Minister, Kudrin… Was it an overreaction, I asked? A resounding YES was my answer… I think the proof is in the pudding on that this morning, as the dollar buying has hit a roadblock, and reversed overnight, with the euro gaining back about 1%…

The euro also got a needed boost this morning, as German Investor Confidence jumped to a three-year high. Seems most investors believe the economic slump in Germany, the Eurozone’s largest economy, is easing… Of course, we know that while Investors believe the economic slump may be easing, it may, in reality, not be easing… It’s all about perception, right? Any old way, the currencies have rebounded from yesterday’s bloodbath… And now the currencies have a bid tone, and not the dollar!

And now a news flash just came across that these countries are “considering buying each other’s bonds, and swap currencies” to eliminate the dollar from those transactions… OK… Skip back to yesterday… Here’s what I said… Pfennig 6/15/09: “I would have to think that the Finance Ministers of these countries would be interested in knowing how they can avoid another downward spiral caused by dollar buying… And… This… Would be the key, folks… I don’t know what it would be, but if they did something like a currency swap / foreign exchange line between each other for trade, that would be colossal! Which is bigger than HUGE!”

The BRIC (Brazil, Russia, India, China) meeting I told you about yesterday, actually happens today. Sorry for the mix-up, as I thought it would happen later this week. There were already comments hitting the news wires that Russian President Medvedev, wants to talk about issue of the dollar as the reserve currency… Now, if he does, and I’m not saying that he will, but if he does talk about that, doesn’t that wipe out the Finance Minister, Kudrin’s, comments about Russia’s belief in the dollar? And… If he does, and again, I’m not saying that he will, but if he does, my thoughts yesterday, that this would happen at the BRIC meeting, would come to fruition…

There’s always been a clamoring for a basket of currencies consisting of the BRIC countries… The problem is that the Russian ruble just isn’t liquid enough to get this done, like EverBank World Markets does their other CD’s… So… How about dropping the “R” and doing a BIC? Well… Again, even though EverBank does offer these currencies of Brazil, India and China individually, it’s not easy… In fact it’s quite the ordeal to get them done… But, eventually, we’ll think of something!

OK… Now back to the goings on in the markets… This BRIC meeting today seems to have quite a hold on the markets’ attention today… And it is a BIG thing, IF they do discuss the alternative reserve currency talk… Talk the talk, and walk the walk… These countries can’t keep complaining about the need for a new reserve currency, and not do anything about it…

Looks like all the stimulus and money supply in the U.K. is beginning to show up in the inflation data… U.K. May CPI jumped .6%, thus pushing the year-on-year (YOY) figure to 2.2%! Now, this is important for a couple of reasons, folks… 1. it could signal an end of the easy money in the U.K. IF they are prudent in removing the stimulus, as they and their friends over at the Fed claim they will be… And 2. and more importantly… Is… The U.S. has actually been behind the events surrounding the financial meltdown in the U.K…. So… If the U.K. is beginning to see inflation rise, it stands to reason that it won’t be long before we see it happening here too…

Down Under… The currencies of Australia (A$) and New Zealand (kiwi) both fell flat on their respective faces with the dollar on the rampage yesterday… But were able to rebound a bit overnight. They were moved higher, when the minutes of the last Reserve Bank of Australia (RBA) hinted that the RBA was going to maintain their easing bias, but move to the sidelines for the foreseeable future… Folks… That’s Central Bank parlance for… This is it! Unless the sky falls! This is the bottom as far as rate cuts go! But… It will be awhile until they move up…

Well, that’s how I read their statement! And I’ve been reading Central Bank statement for 17 years now… I think the traders that cover A$’s think the same thing… And kiwi, just grabbed on to the coat tails of the A$…

Did you see the color of the TICs data yesterday? WOW! Or should I say, UGH? The net security purchases by foreigners for April showed a HUGE drop! The total net purchases were $11.2 Billion… VS $55 Billion in March! And… The ongoing holdings of Treasuries feel a net of $2.6 Billion… Now… Here’s where I get all ticked off folks… We’ve had Japan, China and Russia all say publicly that they have full faith in U.S. dollar denominated assets (read Treasuries)… But when it came to backing up the talk with the walk… They failed to show that they have full faith in these assets, didn’t they!

These countries and their Finance Ministers caused investors HUGE losses with their statements, but when it comes down to the cheese that binds, these Finance Ministers didn’t have the intestinal fortitude to back up the statements… Well, at least in April they didn’t!

And $11.2 Billion a month is not going to be enough to finance the Current Account Deficit… Which will print tomorrow, how convenient! But that’s for April, and we won’t get all that data for months! However…

Right now, the “experts” believe the Current Account Deficit, which consists of the Trade Deficit, and the Federal Direct Investment, will be a deficit of $85 Billion (recall that the Trade Deficit had come down in the 1st QTR) for the 1st QTR… And going back, which is exactly what the Gov. doesn’t want anyone to do, I see that the total purchases in the 1st QTR were a mere $40.63 Billion… There’s a $46 Billion gap there folks…

I’ve gone over this financing thing so many times in the past that it make my head spin (yes, you should see it spinning right now!) just thinking about explaining it again… But, for those new to class… When a country has a financing problem (like it looks we had one in the 1st QTR) the gap gets pushed to the next quarter and so on, until… The chickens come home to roost… And then, a country has only two choices… They can raise interest rates aggressively to make the assets more attractive to the foreigners, or… They can allow a general debasement / weakening of their currency, to make purchases of the assets cheaper by discounting the clearing mechanism… The dollar, in this case… So… Which one do you think a Gov., especially one like ours, will choose to use? Yeah, right, like they would choose number 1!

Ok… Some more depressing news about the housing sector came through yesterday in the National Association of Home Builders Home Price Index (NAHB) printed worse than expected yesterday… The “experts” forecast the NAHB would be a 17… And it printed at 15… Soon afterward, economist Robert Shiller, said that the housing downturn “was not over yet”… Economist Nouriel Roubini, said that “house prices will fall another 15-20%” and… Banking analyst Meredith Whitney said that “she is even more bearish than either Shiller or Roubini on housing.”

That’s not good news folks… Nouriel Roubini as been dubbed as a gloom and doomer by the media (I don’t think so… He just tells it like it is, he can’t help it that it’s not all seashells and balloons for the economy, like the media would have you believe!) and when another analyst, as prominent as Meredith Whitney says she’s even more bearish than Roubini, you’ve got to sit up and take notice!

I just can’t end the day’s letter with those two depressing stories back-to-back… Oh! Here’s an interesting story… The Japanese Finance Minister, believes the recession in Japan is nearing an end… Yeah, right… If I had a 1-oz Gold American Eagle Coin for each time a Japanese Finance Minister has said those words since 1990, I would be quite the “rich man”! But, the markets swallowed his statement hook, line and sinker, which is good for the yen! Japanese yen outperformed all the currencies overnight, and is trading with a 96 handle once again!

Speaking of Gold… It has rebounded by $8 this morning, as the sentiment to buy dollars has faded…

Currencies today 6/16/09: A$ .8020, kiwi .64, C$ .89, euro 1.39, sterling 1.6440, Swiss .9220, rand 8.00, krone 6.42, SEK 7.8070, forint 201.50, zloty 3.2550, koruna 19.2780, yen 96.83, sing 1.4575, HKD 7.75, INR 47.75, China 6.8335, pesos 13.36, BRL 1.95, dollar index 80.55, Oil $72, 10-year 3.72%, Silver $14.35, and Gold… $937

That’s it for today… The rain that came through this morning was very a “hard rain”… And no, I’m not going to go into Bob Dylan here… We’ve had our share of “hard rain” lately, and the low lying areas are seeing flooding. The river that runs through my little river town, is on the rise again… I thought I had a doctor’s appt today, but my calendar tells me it’s next Tuesday! Yahoo! OK… Not too much else to talk about this morning, so, I’ll just end it here, and send you on your way to a Hopefully Terrific Tuesday!

Source:  German Investor Confidence Is On The Rise

Good day… And a Thunderin’ Thursday to you! It may not be Thunderin’ where you are, but apparently it was yesterday in my little river town, as I heard we had some shingles blow off… And… It certainly is Thunderin’ over in the Eurozone this morning, I’ll tell you why in a minute. So, let’s get going don’t want to get caught in any of that Thunder!

I finished the last of my 3 presentations yesterday, and called it quits, as far as walking back and forth to the Conference Center. They’ll just have to do without me at the booth! But the presentation was good, I think, and I made some very important points. None of which, were brand new to Pfennig readers!

Once again yesterday, the currencies traded in a very tight range, with a bias to buy dollars… Something quite opposite to what we’ve seen in recent trading sessions. Earlier this morning, the Weekly Initial Jobless Claims printed at 637,000 (forecast at 610,000), so once again the euphoria that was in the markets last week with the thought that the U.S. was coming out of the recession is turning into hogwash… Oh, and the continuing claims, which to me is just as important as the new claims, rose much more than expected too at 6,560,000…

And, we’ve already seen the color of the PPI data this morning. (Not that it accounts for a hill of beans! In my opinion, that is!) PPI rose a bit in April, but nothing, according to the Gov’t., to be worried about, with regards to pipeline inflation… Yeah, right… The Gov’t also probably believes we are all dumb enough that we would have to be told what the answer to 2+2 is!

So… Regarding the Thunder in the Eurozone this morning… Reuters is reporting this morning that the: “ECB HAS REJECTED C.EUROPEAN CBANKS’ REQUEST TO ACCEPT LOCAL CURRENCY BONDS AS COLLATERAL – HUNGARIAN CBANKER KIRALY”

Recall that the European Central Bank (ECB) adopted Quantitative Easing two weeks ago, but there were some very important and powerful dissenting votes. For instance, the Bundesbank, Germany’s Central Bank, and the most influential Central Bank in the ECB, was totally against Quantitative Easing…

So… Now today, apparently, the ECB’s Quantitative Easing has a line drawn in the sand… And it’s for “members only”… ECB President, who just a week ago engineered a truce among Eurozone Central Bankers, will need to polish up his negotiating tools once again… While this is happening, the euro, gets hung out on a line.

Recall that I told you that the Swiss National Bank (SNB) was watching for currency appreciation, as they did not want the Swiss franc to gain. Because… The Swiss are fighting deflation, and a strong currency would fight inflation.. The SNB has said they would intervene if the franc got too strong… Well, this morning, an SNB official told the markets once again that he’s concerned with the franc’s recent strength… HEY! SNB! GET OVER IT! You should never, ever, not in a million years, want a weak currency… You should be careful what you wish for!

A reader sent me a story that is very interesting… Here’s the skinny, from the BBC… Japan’s opposition party said that it would refuse to buy U.S. Treasuries denominated in dollars, if elected… Whoa there partner! What’s this again?

The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.

“Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits. But, he added, it would continue to buy bonds only if they were denominated in yen – the so-called samurai bonds. If it’s [in] yen, it’s going to be all right. We propose that we would buy [the US bonds], but it’s yen, not dollar.”

OK, before everyone begins to panic… Observers say that it is unlikely that Mr. Nakagawa’s party will win the forthcoming election in Japan. But… What happens if they get enough attention to this position? Could it be adapted by the winning party too? I don’t know… I tend to think no, as this would be a large reversal of current policy, and the Japanese aren’t known for major shifts of policy!

So… The main point of this exercise was to point out that it’s not just the Chinese who are running scared of the U.S. deficit spending…

Meanwhile, back at the ranch… This week’s data, so far, has really put the risk takers off balance, and risk aversion seems to be sneaking back into the markets… If that’s so, and we need a couple more days of this type of trading to tell for sure, then stocks will take a hit, and so will the currencies… Again… This is why I want this link to break… I’ve never seen it before and would hope to never see it again! Fundamentals! That’s what I want to see!

I’ve talked so much about Gold here in Las Vegas, and haven’t really touched on it much in the Pfennig lately, so… I’m here to change all that! With the stocks wobbling again, Gold gets some McLovin… The shiny metal pushed higher yesterday and overnight to settle in this morning at $924… While the stocks were getting bought, Gold had to take a back seat to the proceedings… But now that we’ve seen a few days of stock weakness… Gold gets to move to the front of the car! (Hey don’t forget to buckle up!)

A lot of people here at the Las Vegas Money Show are interested in buying Gold… But… They are all convinced that the U.S. is going to confiscate it again like they did in the 30’s… If I’ve told one of these people, I’ve told 100, that 1. in the 30’s Gold was a part of our money. Dollars were backed by Gold, and with the problems of the depression, the Gov’t needed to print more dollars, and thus needed more Gold to do so. That’s certainly not the case today, the dollar is no longer backed by Gold, and Gov’t sure doesn’t have any governor to hold back their printing of dollars! And 2. So, confiscation doesn’t do the Gov’t any good, unless they want to see thousands of people storming the White House with pitchforks and rakes!

And on that note… Let’s go to the Big Finish!

Currencies today 5/14/09: A$ .7550, kiwi .5905, C$ .8515, euro 1.36, sterling 1.5150, Swiss .9020, rand 8.58, krone 6.50, SEK 7.89, forint 212.15, zloty 3.29, koruna 19.7725, yen 95.65, sing 1.4650, HKD 7.75, INR 49.85, China 6.8249, pesos 13.27, BRL 2.0980, dollar index 82.60, Oil $57.33, Silver $13.92, and Gold… $924

Source: The ECB Clash Over Policy Again

However, Eurozone officials continued to put off a U.S. push for more coordinated government spending to stimulate economies.

Key players in the Eurozone, especially France and Germany, have rejected U.S. demands for spending increases to solve the recession, and said that recovery plans should focus on tighter regulation.

Last weekend’s meeting was intended to set the agenda for the group’s April 2 summit in London, which is being viewed as the acid test to determine whether the world’s leaders can find enough common ground for a solution to the global economic crisis.

U.S. Treasury Secretary Timothy Geithner, who has urged Europe to match Washington’s $787 billion package of spending and tax cuts, said there was “broad consensus globally on the need to act aggressively to restore growth to the global economy.”

But without further support from his European counterparts, Geithner won’t be able to piece together even a flimsy coalition to move forward with further spending programs, let alone establish a consensus.

European policymakers prefer instead to rely on the International Monetary Fund (IMF) to review individual government stimulus actions already taken and what more might be required, rather than racing ahead with accelerated spending.

Britain, led by Prime Minister Gordon Brown, attempted to bridge divisions between the United States and Europe on the stimulus issue, but was thwarted by Germany, whose officials maintain that fixing the financial system must remain priority one.

“It makes no sense to pump more and more money in our economy when we haven’t restored the confidence on the financial market,” German Finance Minister Peer Steinbrueck told the Associated Press.

Meanwhile, U.S. President Barack Obama dismissed reports that the United States and Europe had taken sides, saying it was a “phony debate.”

“I can’t be clearer in saying that there are no sides,” Obama told reporters.

The meeting was a coming out party of sorts for Angela Merkel, the German chancellor who is now leading European opposition to Obama’s call for a global pump-priming package.

“It’s Merkel who holds the key to the cashbox, and she doesn’t want to give it up,” Jean-Dominique Giuliani, chairman of the Robert Schuman Foundation, a research center in Paris, told Bloomberg News.

Merkel’s rejection of more stimulus measures ignited the first international clash of the Obama administration, and brought forth criticism that she might be responsible for delaying a recovery.

As if to establish her independent status, Merkel repeatedly rebuffed Obama’s call for a united front among nations to jump-start the economy.

“Germany really has contributed its share,” said Merkel, as she stood alongside Britain’s Brown in London, 42 miles away from the rest of the group.

European leaders will meet this week in Brussels at a EU summit to decide on what approach they should take to the financial crisis, ahead of the summit meeting on April 2. Merkel could decide the fate of a $6.4 billion (5 billion euro) infrastructure proposal during that meeting.

Casting a further shadow on the summit, Czech Prime Minister Mirek Topolanek said the European Union must beware of U.S. protectionism.

Topolanek, who holds the EU’s rotating presidency, told a German newspaper he believes Washington was solving the financial crisis by passing the buck to other countries.

“The different bailouts and protectionist appeals to buy American goods, the nationalizations that are being called ‘pre-privatizations’ of late — all this points to America fixing its problems at the expense of the rest of the world,” Topolanek told the Frankfurter Allgemeine Zeitung.

Trying to keep a positive face on the proceedings, Geithner said he was pleased with progress at the talks during the weekend, but noted that the world economic situation remains fluid and volatile.

“This is a very challenging period and this is still evolving,” he told reporters.

In one sign of unity, the finance ministers agreed on an “urgent need” for a big increase in the lending resources of the International Monetary Fund to assist struggling governments in the developing world.

However, they left specific amounts, and details about who would contribute how much, open for further discussion.

Source: G20 Meeting Fails to Resolve U.S.-Eurozone Spending Conflict