No matter how well an executive team manages their company, there is very little any of us can do to mitigate political risk. No matter what we do, if a runaway government wants to take our profits, there is nothing we can do to stop it.

But the political teeter-totter goes both ways. The government giveth and the government taketh. If they want to hand us profits, there is little we can do to stop it.

One company hoping the Obama administration will do more good than harm is MDU Resources Group (NYSE:MDU), a diversified natural-resource company based in Bismarck, North Dakota.

There is a reason this company has consistently outshined its competitors and has been named one of America’s 400 best big companies by Forbes. It is superbly managed by a team of fiscal conservatives that concentrate more on long-term goals than short-term earnings estimates.

MDU was recently named the country’s best-managed utility company. And it shows.

With a current ratio of 1.3 and nearly $800 million in operating cash flow, the company has more than enough financial strength to get it through the current economic mess. But like so many things, what happens next is up to the nation’s Investor in Chief.

When Obama signed an economic stimulus package worth nearly a trillion dollars into law, MDU shareholders were drooling at the possibilities.

Read the full article here at TFN: MDU Resources: The best utility of them all?

Firmer Asian, British and emerging market shares pushed world stocks to a one-month high on Thursday with the focus on the fate of U.S. automakers, while doubts over deep euro zone interest rate cuts boosted the euro.

Oil rose 5 percent, extending earlier gains, while the index of leading European shares fell. U.S. stock futures were pointing to a firmer open on Wall Street with investors focusing on the $14 billion plan to bail out the big three U.S. automakers.

The proposal passed the House of Representatives but its prospects looked grim in the Senate where supporters, who say the measure is necessary to avoid another jolt to an already contracting economy, struggled to keep it alive.

“Most of the bad news is already in the market. It is going to get worse? Sure. The economic news is going to get awful worse,” said Peter Dixon, UK economist at Commerzbank.

“But the market will only react if the numbers continue to get worse.”

MSCI world equity index rose 0.7 percent. Asia rose 0.7 percent and Britain gained 0.3 percent. Emerging stocks  rose more than 1 percent. The FTSEurofirst 300 index of leading European shares was down 0.7 percent. U.S. stock futures were up around 0.1 percent on the day .

The euro rose 1.5 percent to a six-week high of $1.3222 after European Central Bank Executive Board member Juergen Stark said the central bank does not have a lot of room for manoeuvre after its interest rate cut last week. Stark also said further rate reductions could be done only in small steps.

The region’s interest rate futures are now showing that the euro zone cost of borrowing to bottom out at 1.75 percent, from just over 1.5 percent after the ECB’s move last week to cut rates to 2.5 percent.

“If the euro zone is being perceived to still have rates at substantially higher levels then obviously there’s a positive rate spread,” Rabobank markets strategist Jeremy Stretch said.

“But I’m not convinced that its ultimately going to be positive as the dynamics of the euro zone economy are pretty weak.”

The Swiss franc cut earlier gains to trade at 1.1927 per dollar after the Swiss National Bank cut interest rates by 50 basis points. Switzerland, Canada and Korea joined a growing number of central banks worldwide in cutting interest rates over the past 24 hours.

The dollar fell 1.3 percent against a basket of major currencies. The December Bund futures fell 18 ticks.

U.S. crude oil was up 5 percent at $45.70 a barrel, helped by favourable demand forecast by the International Energy Agency and signs that top oil exporter Saudi Arabia has slashed January supplies ahead of next week’s OPEC meeting have underpinned prices.

Natsuko Waki

LONDON, Dec 11 (Reuters)

As ECB President Jean-Claude Trichet announced the largest cut in the Eurozone’s 10-year history, he said that the region is bracing for negative growth next year.

“Global and euro-area demand are likely to be dampened for a protracted period of time,” Trichet said at a press conference in Brussels today, Bloomberg reported.

The ECB estimates average annual real gross domestic product (GDP) growth to be between 0.8% and 1.2% in 2008, between -1.0% and 0.0% in 2009 and between 0.5% and 1.5% in 2010.

The ECB’s rate reduction followed two other huge central bank cuts in Europe.

The Bank of England cut its rate by one percentage point to 2%, its lowest level since 1951. That cut followed its 1.5 percentage point cut to 3% less than a month ago. Sweden’s central bank also slashed a record 1.75 percentage points from its primary interest rate.

Meanwhile, France unveiled its own economic stimulus plan today – a $32.9 billion (26 billion euro) injection that will target infrastructure, support local authorities and help its own ailing auto industry. The goal is to increase its GDP by 0.6% next year and push its deficit to 3.9% of the GDP, Reuters reported.

Wrapping everything together, are the Eurozone’s latest economic statistics, also released today, that said that GDP shrank 0.2% in the second quarter, investment dropped 0.6% and household spending remained flat.

Holger Schmeiding, chief European economist at Bank of America in London, said Europe is facing a “very serious recession.”

“Despite a major monetary stimulus and some help from lower oil prices and a looser fiscal policy, we do not expect the economy to recover before late 2009,” Schmeiding told Bloomberg.

Outside the Eurozone, four other countries recently slashed their primary lending rate earlier this week.

• New Zealand reduced its interest rate by 1.5 percentage points to 5.0%, a five-year low.
• Indonesia made its first interest rate cut since December 2007, reducing its key interest rate by one-quarter of a percentage point to 9.25%, Reuters reported.
• The Bank of Thailand cut its main interest rate one percentage point to 2.75%, its biggest reduction in eight years and its first cut in 16 months.
• Australia also cut its lending rate by a full percentage point to 4.25%, a six-year low.

Source: Record Rate Cuts and Economic Props Light up Europe

The “experts” have forecast a -335K drop in jobs for November… But, your old Pfennig writer believes that this forecast is low. I think it will be closer to -375K… The reason I say that is the employment piece of the ISM report that printed the other day… The employment index of that report showed some real serious rot on the labor vine… I read a report last night, where an economist was attempting to show how the report should read -750K… As bad as -375K is, I don’t think the Bureau of Labor Statistics (BLS) would have anything to do with printing a -750K report!

The currencies rallied a bit yesterday, but settled down for a long winter’s nap in a tight range overnight ahead of the Jobs Jamboree data. The euro saw the bright side of 1.28 yesterday, but as I said, the range became tight overnight… You see no one wants to take a position on either side of the ledger ahead of this crucial labor report this morning. And the fact that Factory Orders in Germany dropped last month, isn’t helping the single unit this morning after yesterday’s rally.

OK, enough on that! Yesterday, I left you with the Bank of England (BOE) and the European Central Bank (ECB) meeting and us waiting for their rate announcements, which came about 1/2 hour after I hit the send button. The BOE cut 100 BPS (1%) from their rates, while the ECB opted for 75 BPS (3/4%)… I really do feel as though the BOE has taken a page from the U.S. and Japan’s book on how to deal with all this, and is on the road to zero percent rates. I don’t feel the ECB will go there… While they may go lower in the Eurozone, I don’t think ECB President Trichet, has any intention of following the “Japanese model”…

Trichet said something yesterday that made me believe that he won’t become Trichet-san… Trichet said that, “we mustn’t confuse Deflation with Dis-inflation” He went on to also say, “The ECB will NOT get trapped at rat levels too low”

So… We had Australia drop 100 BPS, New Zealand drop 150 BPS, Sweden drop 150 BPS, U.K. drop 100 BPS, and Eurozone drop 75 BPS all this week, and for the most part, none of these currencies got taken to the woodshed for debasing their currencies by such large margins… Normally, a 25 BPS rate cut can cause a currency some major problems… But nothing here… So… Why… Do… I… Think… This… Is… Happening…? Hmmmm… It’s probably a case of unconventional measures are seen as not working, so conventional ones have little chance. And… If you really get to the root of the credit crisis problem… It alls circles around the fact that the availability of credit not the cost of credit is the issue.

But that doesn’t stop these Central Bankers from slashing rates at an alarming pace, eh? I think these Central Bankers are quite aware of the fact that the markets’ focus has become so myopic on the Credit Crisis, that they could do a handstand on their desk while sticking out their tongue while announcing a rate cut, and the markets wouldn’t notice…

PIMCO (the world’s largest bond dealer) issued a report on pound sterling yesterday, that’s quite interesting… The writer, Myles Bradshaw, a money manager for PIMCO, said in a report yesterday, that, “if you were shorting the pound, now is the time to reduce those positions”… Hmmm… You see Mr. Bradshaw makes a strong / good point about how interest rates in the U.K. have been brought to levels not seen since Winston Churchill was around. And that may be enough to keep the U.K. economy from falling off a cliff…

Well, that goes against my earlier call that I believe the BOE will follow the Japanese model, and cut rates to near zero. I say this, because the U.K. has major problems folks, and I don’t think having rates at 1951 levels, has anything to do with how bad things will get here…

The China- America talks ended yesterday, with an agreement between the two giant countries to provide $20 Billion to fund trade and agreed to deep financial ties… However, the two couldn’t leave a meeting without needling the other… U.S. Treasury Sec. Paulson, urged China to continue to allow currency flexibility… And the Chinese told the U.S. to: “tackle your own problems, such as excessive consumption and debt” You can’t believe how that made me chuckle… Our leaders won’t talk about excessive consumption and debt, (I do, and have for years!) but the Chinese go right for the wound, that the U.S. tries to place a band-aid on… And they nailed it!

Did you see this news yesterday on the Fox news website… “Israel is reportedly drawing up plans to strike Iran’s nuclear facilities and is preparing to do so without U.S. backing.” Now… I’m not going to get into the what’s and so ons here… I merely mention this to point out something… After the news story hit the website, Swiss francs rallied strongly, which told me that it still holds the “flight to safety” badge… Unfortunately, though, Gold did not rally… Hmmm… Very disappointing…

OK, now that there was some denials of the story, the Swiss franc has given back it’s gains yesterday…

There was a story reported in the Wall Street Journal yesterday that certainly is a sign of the times, in my opinion… Here you go, and see if you get the same felling of this sign of the times that I did…

WSJ… “U.S. retailers reported some of the weakest sales figures in years for November, which included the Black Friday kickoff to the holiday shopping season.

Gap reported a 10% drop in same-store sales, while Macy’s fell 13% and Nordstrom dropped 16%. Target reported a 10% drop, worse than expected, though Black Friday sales were stronger than the rest of the month. But Wal-Mart topped estimates on increased store traffic and purchase size.”

I’ve had a lot of questions over the years about PPP… Well… PPP is Purchasing Power Parity, and is most well known in the Economist Magazine’s Big Mac Index, where the monitor the price of a Big Mac all over the world, with the idea that if a Big Mac is more expensive in Europe than it is in the U.S. the European currency is overvalued by the percentage of the Big Mac price difference. Well… You know, this is all good on paper, but you have to look at what’s going on in a country first… If for instance the wages of Europeans is on a whole higher than that of Americans, then their standard of life is “more expensive” and therefore the price increase in the Big Mac means nothing to me…

OK, so, now that I’ve gone through that exercise, it’s still a good thing to check PPP just to make certain things don’t get out of whack by too much of a margin… And in that light, my old Corp. FX guru, Ashish, sent me a note about PP yesterday, that showed the euro still overvalued VS the dollar, but by a far less amount than a few months ago. It showed the pound to be undervalued, along with the Swedish krone… Hmmm… Oh, well, none of these are too out of whack… And… As I told a crowd of people at one of the FX University Tours that I now use the Ipod index instead of the Big Mac index…

The lawmakers in Japan, have taken a page from the U.S. book and announced that they are looking at the possibility of allowing tax breaks on profits made overseas and brought back to Japan (repatriation)… You may recall that in 2005 the U.S. did this same thing, and really did a bang up job of propping up the dollar for that year… Should this law pass in Japan, it could very well spell a period of further yen strength. I’ll keep an eye on this…

The news from Canada just seems to get worse all the time, which has led to a large drop in the loonie in the past month. This morning, it was their version of the Jobs Jamboree, which showed a much larger than expected drop in jobs… -70K VS the -25K forecast… Take the Commodity prices collapse, the low interest rates, the parliament suspension possibility, and now a hickey on the economy with job losses, and you can see why the loonie has dropped by almost 6% since 11/21… UGH!

Speaking of Commodity prices… Our friend, Jim Rogers, was speaking again yesterday and made some great points regarding Commodity Prices… Here are a couple of quips from Jim Rogers… “Commodities will be the place to be if and when we come out of the downturn. The only thing where fundamentals are unimpaired are commodities. Farmers can’t get loans for fertilizer now. Nobody can get a loan for a zinc mine. So we are going to have some serious, serious supply problems before too much longer.”

And more importantly for some folks to know… Jim Rogers said that he, “hasn’t sold any commodities since the bull market began.”

We had the TV on the automakers pleas to lawmakers yesterday for bailout money… At one point it was really sad, as one of the Big 3 CEO’s, which by the way did NOT take private jets to D.C. this time as they did the last time, and really ticked some people off… This time they took hybrid cars) I think it was Ford’s CEO, was pleading his case, and the look on his face was so sad, it looked like he was saying, “please dad, can I have my allowance early, I’ve got this important date and she expects me to take her someplace nice”… Please dad? It was sad…

Someone in the news said that while everyone is ranting about the bailouts, it certainly seems to be a better course of action than to allow 100’s of thousands of autoworkers to lose their jobs… I guess he has a point there… But, who’s fault is this? Mine? Did I make awful choices the past 30 years regarding cars and how they were built, and what to build? I was telling Ty Keough the other day that I have never owned a Big 3 made car that didn’t have a major problem at one point… Transmission, engine, you name it I experience it, with all three! Maybe I was the exception, the black cloud if you will, but you can see how my view would be shaded here…

What? You didn’t think I was going to go to the Big Finish without talking about something controversial did you? HA!

So… Which way will the currencies go with a nasty Jobs Jamboree figure? Well, in the days before the Trading Theme was put into place… It would have meant “curtains” for the dollar… But with the Trading Theme allowing dollar strength the deeper, darker, and more dangerous the data gets, one would think that we would see more dollar strength, with a nasty Jobs Jamboree figure today.. We’ll have to go into the weekend on that note folks… A nasty Jobs Jamboree…

Currencies today 12/5/08: A$ .6420, kiwi .53, C$ .7755, euro 1.27, sterling 1.4685, Swiss .8250, ISK 261, rand 10.27, krone 7.2050, SEK 8.34, forint 209.90, zloty 3.06, koruna 20.3315, yen 92.10, baht 35.60, sing 1.5220, HKD 7.75, INR 49.60, China 6.8810, pesos 13.65, BRL 2.5380, dollar index 87.03, Oil $44.20, Silver $9.47, and Gold… $769.40

Source: It’s All About The Jobs Jamboree

Gold slipped in Europe on Thursday as the dollar firmed against the euro ahead of an expected rate cut by the European Central Bank later in the session, and oil prices fell $1 a barrel.

Investors are eyeing rate cuts this session from both the ECB and the Bank of England and key U.S. jobs data on Friday for clues as to the future direction of trade.

Spot gold slid to $769.25/771.25 an ounce at 1000 GMT from $772.60 an ounce in New York late on Wednesday.

“With a lower euro-dollar and lower oil, gold is pressured a bit,” Commerzbank senior trader Michael Kempsinki said. “Around $735, $750, we should see some good buying interest coming into the market.”

The dollar firmed in early trade against the euro, as did the yen, as investors worried about the breadth and depth of the global recession bought into the currencies.

A stronger dollar tends to weigh on gold, which is commonly bought as a hedge against weakness in the U.S. currency.

The European Central Bank and Bank of England are expected to announce rate cuts later in the session.

The ECB is widely seen cutting by 50 basis points to 2.75 percent, while the BoE could slash its rates by up to 1 percentage point to 2.00 percent.

The other main external driver of gold, oil prices, added pressure on the precious metal as they fell to a four-year low on Thursday.

Oil has been hit by concerns that a deep recession could have a severe impact on demand. These outweighed the price-positive effect of a 400,000-barrel drop in U.S. crude inventories reported on Wednesday.

Physical demand is easing in some of gold’s traditional markets as traders await price falls. Indian buyers are looking for prices of around $740 an ounce before making purchases, dealers reported.

PLATINUM STEADIES

Platinum prices were steady, but held only a touch over those of gold, as traders worried about the impact of the recession on carmakers, who account for around half of all demand for the white metal.

“Concerns over industrial demand for the metals – particularly from the auto sector – will continue to keep prices under pressure for the time being,” Standard Bank analyst Leon Westgate said in a note.

“In the background however, mounting production cutbacks and mine closures suggest that there may be a very rapid price recovery once the first signs of increased metals demand start to emerge,” he added.

Spot platinum was quoted at $796.50/816.50 an ounce, little changed from $793.50 in New York trade late on Wednesday. Its sister metal palladium was at $170/178 an ounce against $171.

Zurich Cantonal Bank said holdings of its platinum-backed exchange-traded fund rose 27 percent to 105,200 ounces on Dec 1, from 83,000 ounces in September. Its palladium-backed ETF saw inflows of 12 percent in the same period.

Among other precious metals, spot silver slipped to $9.57/9.65 an ounce from $9.63.

The world’s largest silver-backed ETF, the iShares Silver Trust (SLV), said its silver holdings fell 32.24 tonnes to 6,651.79 tonnes on Dec 3.

Jan Harvey,Sue Thomas
LONDON, Dec 4 (Reuters)

And Japanese yen is “getting bought!” Yen is trading in the 93 range this morning… Strong, very strong!

When this all began, I truly believed that it would last through the elections and on to the end of the year… Then the magnitude of the problems were revealed, and I changed that to lasting probably through to spring. The longer it takes the “boys” Paulson and Bernanke, to get this credit market crisis unlocked, the longer it will take before we return to the fundamentals that continue to get worse by the day.

On Friday, Chris printed some thoughts I had left him regarding the data that printed on Wednesday, wasn’t that just downright scary? I know that a ton of you all had the day off on Friday, and didn’t see the Pfennig that day, so for those of you that missed class on Friday, here’s what I had to say about the data prints from Wednesday…

New-Home Sales Sink 5.3% to Lowest Level in 17 Years U. Mich. Confidence – new low since ‘80
Chicago PMI collapses Consumer Spending Fell to 7-Year Low in October (manufacturing for that region)
Americans’ Food Stamp Use Nears All-Time High

And can’t imagine what in the world the people that make the official call on a recession the NBER (National Bureau of Economic Research) are thinking… I called this a recession back in January, and they have yet to make the call… Amazing!

Of all that bad data, the only one that will have a good outcome in the end, is the Consumer Spending falling to a 7-year low. We’ve gone on with this spending more than we make, for far too long! Now, if we could just get the Gov’t to do the same!

Now onto this week… So, as I said above, the risk aversion theme is back… There will be a ton o’ data print this week with it all culminating on Friday with the Jobs Jamboree… Just peeking ahead at Friday, the “experts” believe the job losses for November will be 320K, with the unemployment rate moving to 6.8% from 6.5%. That’s downright ugly folks.

Speaking of ugly… Today, we’ll see the color of the Nov. ISM (manufacturing) Index, which collapsed to 37 last month, and is expected to have fallen to 32 in Nov. All this “bad data” does is put the Trading Theme front and center even more…

OK, The Chinese renminbi has fallen .73% overnight, which is the largest drop for the currency since dropping the peg to the dollar in July 2005. I find it interesting that the banking officials allowed the renminbi to drop by that large of an amount right before, U.S. Treasury Sec. Paulson is about to visit… Can’t you just hear the Chinese saying something like this to Paulson… “See, Mr. Treasury Sec. we can play games with our currency too, and so now if you’ll just get yourself back on that plane, and leave us alone, we’ll see where the currency goes next.”

The Chinese have their own problems right now, and making sure their currency continues to strengthen isn’t one of them! China has shifted from “inflation fighting” which requires a strong currency, to “promoting growth” which doesn’t! And with exports set to collapse next year, given the U.S. recession, a currency strengthening just isn’t on their agenda any longer.

There will be a truck load of Central Bank rate meetings this week, beginning with the Reserve Bank of Australia (RBA) tonight. The Reserve Bank of New Zealand (RBNZ), Bank of England (BOE) and European Central Bank (ECB) are all expected to cut rates this week, and then next week, we’ll see rate cuts from the Bank of Canada (BOC) and the Fed Reserve…

Global rates are going lower and lower folks, we had all better be prepared for this, as it is going to happen, no doubts. For instance, I fully expect the RBA to announce a 75 BPS rate cut tonight or tomorrow, whenever they do it…

Now… Enough rate talk… How about we visit the goings on with the bailouts? Oh, goodness gracious, no! I don’t want to go there! My blood pressure is doing just fine today! Oh? I have to? The little guy on my right shoulder is telling me to not go there, and the little guy on my left shoulder is telling me to do it, NOW! Hmmm… Ok, I won’t do it, but what I will do is give you a thought from a reader, who is an investment advisor regarding all of this and the Gov’t taking ownership of banks… Let’s listen in…

“Does anybody out there have any memory of the reason given for the establishment of the DEPARTMENT OF ENERGY during the Carter Administration? Anybody? Anything? No? Didn’t think so. Bottom line .. . we’ve spent several hundred billion dollars in support of an agency the reason for which not one person who reads this can remember. Ready? It was very simple, and at the time everybody thought it very appropriate. The Department of Energy was instituted 8-04-1977 TO LESSEN OUR DEPENDENCE ON FOREIGN OIL. HEY, PRETTY EFFICIENT, HUH? AND NOW IT’S 2008, 31 YEARS LATER, AND THE BUDGET FOR THIS NECESSARY DEPARTMENT IS AT $24.2 BILLION A YEAR, THEY HAVE 16,000 FEDERAL EMPLOYEES, AND APPROXIMATELY 100,000 CONTRACT EMPLOYEES AND LOOK AT THE JOB THEY HAVE DONE! THIS IS WHERE YOU SLAP YOUR FOREHEAD AND SAY ‘WHAT WAS I THINKING?’ Ah yes, good ole bureaucracy. And now we are going to turn the Banking system over to them?”

Now, that’s one of those things you say, Whoa There Partner! I’ve warned about this Gov’t sticking their hands into banks and acting like owners before… But that’s exactly what’s happening folks…

OK, enough… Let’s talk Gold a bit… Mark O’Byrne, executive director at Gold & Silver Investments, has his attention on the open interest numbers.

Comex gold futures open interest—the number of outstanding contracts—declined sharply this month, falling to 289,700 contracts in the week ended November 18, according to the Commodity Futures Trading Commission. That’s down 9.3% from a month ago.

What the low open interest means is “that nearly all the speculative froth has been liquidated and remaining longs are ‘strong hands’,” O’Byrne says. “This will encourage more long interest to enter the market and should contribute to markedly higher prices in the coming weeks.”

OK… But… We need to see the markets return their focus on the fundamentals to weaken the dollar before we get any “real traction” in Gold… At least that’s my opinion, although Gold did have its best month in 9 years in November, gaining 11%…

Well, the good news from the weekend was that the Black Friday retail Sales were stronger than expected… But what’s going to happen when, as I said above, job losses post a 320K figure at the end of the week? I think it takes the wind out of those sails in a heartbeat!

I’ve gone on a bit this morning, but there’s lot to talk about, and that means an Iceland update! Reuters reported on Friday that… REYKJAVIK, Nov 28 (Reuters) – Iceland’s parliament passed legislation on Friday to curb currency outflows and the central bank vowed to restrict credit as authorities moved to restart trade in the collapsed Icelandic crown.

“The bank will maintain tight control over the access of banks to central bank credit until exchange market stability has been achieved,” Sedlabanki said on its Web site.

It said temporary currency restrictions, which had been necessary for Iceland to function at a basic level, would be lifted in stages.

“A considerable proportion of crown-denominated securities are owned by foreign investors. Lifting restrictions by stages will make it possible to unwind their crown-denominated positions in a systematic way, as the external balance permits, without undue impact on the exchange rate.”

There have been quite a few individuals that have ripped us for our handling of the Iceland meltdown, but as you can read above, there WERE CURRENCY CONTROLS in place…

One industry that’s not experiencing slowing sales… Guns… Barack Obama apparently is the best salesman the gun industry has had in years! With many buyers worrying about higher taxes or limits put on guns and ammo, sales are quite brisk since the election… I sure wish I was talking about home sales being brisk, or computers, or something like that…

Currencies today 12/1/08: A$ .6425, kiwi .5355, C$ .8045, euro 1.2675, sterling 1.5040, Swiss .8285, ISK 230, rand 10.25, krone 7.0280, SEK 8.1825, forint 207.35, zloty 3.0425, koruna 20.2330, yen 93.90, baht 35.75, sing 1.5285, HKD 7.7518, INR 50.29, China 6.8842, pesos 10.25, BRL 2.3735, dollar index 86.71, Oil $52.07, Silver $9.94, and Gold… $794.00

Source: Back to Risk Aversion

This from Investment U:

Recall, in late March I predicted here the dollar was overdue for a rally. Ninety-six percent of you cursed me. The other 4% pocketed an easy 20% or so (more if you played the options market).

But after such a swift run – mind you similar moves in currencies typically take years, not months – is the dollar rally finally coming unhinged?

Legendary investor Jim Rogers seems to think so…

As he told Bloomberg News in a TV interview, he plans to exit his dollar holdings because he thinks the dollar “will go down a lot” and it is “going to lose its status as the world’s reserve currency.”

To which I simply respond, “Into what Jimbo?”

No other choice for a reserve currency exists. No matter how much other governments wish it were so.

The euro is frequently mentioned. But it’s depreciating in value. And there’s not enough liquidity to handle the demand. Plus, it’s still a prepubescent, experimental currency, not one governments can invest in with 100% faith.

Moreover, with two-thirds of foreign reserves already in dollars, it would take more than eight years to replace the dollar as the currency of choice.

So once again, I’m striking out on my own. (And I’m ready for the flood of fan e-mails.) While many pundits would like you to believe that the dollar rally will be short-lived, I completely disagree.

The dollar’s not done.

Today I offer up three more reasons why. And of course, three ways to play it…

Too Far, Too Fast? Hardly…

Keep in mind, currency rallies tend to be measured in years and months. Not weeks and days. In fact, according to Bespoke Investment Group, the average dollar rally lasts 489 calendar days. The longest rally on record lasted roughly 10 years.

While I don’t think we’re in store for a historic run this time, I do think the current rally has more legs (about another year based on the averages out of Bespoke).

Aside from no alternative world reserve currency, here are three more fundamentals in defense of the dollar:

Further Interest Rate Cuts
Foreign governments bought into the farce that was decoupling. As a result, they remained hawkish for way too long, keeping interest rates too high, at a time when they should have been cutting them to stimulate growth. And now they’re scrambling to catch up. They must make growth their first priority. So further interest rates cuts are inevitable, narrowing the gap with U.S. interest rates. And before long, perhaps the middle of 2009, we could be raising rates while other countries are still lowering.

Continued Deleveraging
As Mark Astley, CEO of Millennium Global Investments, a U.K.-based currency manager notes, “there is a pyramid of leverage” in the financial markets that will take considerable time to unwind. The half-frozen credit markets are only slowing down the process. As they thaw out completely, expect hedge funds and foreign banks to keep buying up dollars.

Uncertainty Reigns
Despite a new president, uncertainty remains in the markets. Or as UniCredit wrote in a recent research note, “We do not expect global recession fears to wane considerably.” And during times of fear and risk aversion, the dollar tends to outperform.

Bottom line, the current rally has plenty of room to run. If you dare to be contrarian, here’s how I recommend you play it…

Consider Pure Plays
For a pure play on the U.S. dollar – without trading the currency markets – I recommend the PowerShares DB US Dollar Bullish Fund (AMEX: UUP). It’s designed to replicate the performance of being long the greenback against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

Another strong choice is the EverBank* DollarBull CD. Available in 3-, 6-, 9- and 12-month terms, it offers potential appreciation in the U.S. dollar against a selected foreign currency. If you opt for the latter, I recommend going long the U.S. dollar versus the euro.

Take Profits on Unhedged Multinationals
Consider taking profits in multinationals with significant foreign currency exposure. I say that because the rapidly strengthening dollar will dent future earnings in two major ways. First, because profits earned abroad will be worth less, as they’re translated back into dollars. Second, because demand for the company’s products will drop off, as they will be more expensive to foreign buyers. We’re already seeing this double-whammy hurt third-quarter results for some big multinationals. But if the dollar holds its ground, or strengthens further, the impact will be much more dramatic in the fourth quarter. So get out while you’re ahead.

Buy American
While the dollar was plummeting it made sense to buy companies with significant international sales. They provided a nice currency hedge. However, a strong dollar means we need to reverse course and seek out companies with zero (or minimal) international revenues. I’d stick to solid companies in the utility, health care and consumer staples industries, as demand will remain steady no matter how long the recession lasts.

In the end, I know my dollar stance is contrarian. Or as many of you put it last time, “ignorant” and “completely out of touch.”

I’d add “profitable” to that list now. And I don’t expect this time to be any different.

Source: Jim Rogers is Wrong… The Dollar’s Not Done

But… Then the trading theme entered the picture once again… What brought it back this time, Chuck? Ahhh grasshopper, it was the ADP Employment data that I talked about yesterday morning as a piece of data that gives us a good indication of what the national Jobs Jamboree will look like. And… Unfortunately the ADP printed worse than expected! Stocks immediately began to give back the election day 300 point rally, and the deep, dark, dangerous clouds hovered over the U.S. economy once again. And the rest of the day, the dollar took over the driving duties…

This morning, the Bank of England (BOE) and European Central Bank (ECB) both meet and will both cut rates. So… The thought of lower rates in Europe has added to the weight on the euro this morning, and we’re right back to the trading levels we saw yesterday morning, when I hit the send button!

There are two camps screaming their theories about the ECB rate cut today… In one camp we have the old stick in the mud, “a rate cut debases the currency” crowd. (of which I’m on board with 90% of the time) And in the other camp we have the risk taking “a rate cut will allow the Eurozone to shorten the recession and will be good for the euro” crowd. Hmmm… You know, I’ve seen this kind of perverse way of thinking about rate cuts before… In 2000 and 2001, when the economies of the world were trying to recover after the brief recession in the U.S. that was cut short by the Fed sticking their hands in the cookie jar and acting like they knew what they were doing… Cutting rates to 1% and providing enough liquidity to choke the proverbial horse!

You know… I don’t think I can ever mention the last U.S. recession without going on that tirade about the Fed… Anyway… What I was saying is that during that time the currency markets were rewarding currencies that had Central Banks cutting rates to provide the chance of economic growth. It was the first time I had ever seen that, and I remember my editor of the Review & Focus at that time thought I had “lost it” when I wrote about cutting rates being good for a currency…

The boys and girls over at Citgroup are waving the euro flag again… They issued a letter to clients that said they believed the ECB would cut rates 1% (100 BPS) today, and bring the official rate to 2.75%… They also said that should the ECB cut rates to 2.75%, to buy the euro, as it may rally to 1.33… Of course it’s important to note that the ECB has NEVER moved rates more than 50 BPS before… So, 100 BPS would be a large pile of wood to chop for the ECB, eh?

The euro isn’t the only currency to get whacked by the Trading Theme yesterday… A$ were looking perky at 70-cents before falling back to .6750… And C$ were pushing the envelope on 87-cents only to see their fortunes fade to .8540… And just to prove that the Trading Theme was in play… The only two currencies to gain yesterday… Dollars and Japanese yen!

OK… I know you’ve been waiting patiently for me to discuss the title of today’s discussion… Change… What Change? I was doing some research on the Obama plans yesterday, and just don’t see anything that points to any change in the debt creation. Yes, I know about the gradual withdrawal in Iraq… But that debt isn’t on the radar screen… I’m strictly talking about the Budget Deficit remaining in place and maybe even widening. The research I was reading had this all going on until around 2013… Oh, and the 2009 Budget is forecast right now to be around $800 Billion! Oh, and before any one accuses me of throwing stones at someone who hasn’t even taken oath yet, let me say that I’m just talking about the Budget Deficit, and the economic plans… The public debt is going to get pretty ugly too, all the stuff now in place will be taking the public debt to GDP ratio up to 52% from 37% before the crisis. And that’s on this administration’s bill… With thanks to the Treasury Dept and the Fed!

So… If Change is in order… This is where it need to start! Because, every time we rack up a Budget Deficit, it adds to the National Debt… Which is now $10 Trillion! And yes, the current administration was responsible for adding $4 Trillion to that total!

OK… Enough of thinking about debt… Let’s turn our attention to Gold and Silver, the precious metals… I’ve been talking about the shortage of physical precious metals for some time now. The minters aren’t minting… (except the Perth Mint in Australia, announced about 10 days ago that they were going to double their production of physical coins and bars. I guess that should put to bed all that internet talk about how the Perth Mint didn’t have the bullion to back up their pooled holdings… I wonder what that guy, I won’t even mention his name, because he’s been so wrong about all of this, but I wonder what he has to say now?)

Again, off on a tangent… Where was I? Oh! The minters aren’t minting, and suppliers don’t have any supply, etc. The only time a supplier comes up with some physical metals, it’s because a customer has sold their holdings. We have a list of names of people that want physical metals… And we’ve got nothing to show them… BUT! I put my thinking cap on… And thought… Hey, Chuck! You always tell crowds when you speak at Conferences that they can buy pooled and always have it fabricated to coins and bars later… Well… This is what we should be doing right now! Buy pooled so that you lock in your price now, and when (someday this will happen, when? I don’t know! But someday!) the supply is back to normal… Fabricate the holding then… You’ll have to pay the fabrication costs at that time, but if you had bought allocated coins and bars in the beginning you would have paid for fabrication, so there’s no difference! (fabrication is the actual minting of the coin or bar, and runs about 5% for Gold, and 18% for Silver… It doesn’t cost any more to mint a Silver coin that it does Gold… It’s simply the math in the price difference between the two and the amount of Silver you can buy for the same amount of money in Gold)

So, how about that idea? WOW! It sure pays to put the thinking cap on, eh?

OK… I’m getting near the time to go the Big Finish, and the BOE or ECB hasn’t announced their rate cuts yet. This always happens… I get the Pfennig out at its normal time, and the BOE and ECB haven’t announced yet. That’s OK… Because you read the Pfennig, and your neighborhood friendly Pfennig writer tells you that the BOE will cut rates by 1% today, while the ECB will opt for 50 BPS… That’s my call… We’ll see if I was right, and of course if I’m wrong, I’ll get 50-100 emails telling so! That’s OK… I deserve it, as long as the email isn’t nasty, it’s fine…

Currencies today 11/6/08: A$ .6810, kiwi .5980, C$ .8515, euro 1.2830, sterling 1.5850, Swiss .8540, ISK (no quote) rand 9.75, krone 6.7890, SEK 7.80, forint 203.25, zloty 2.7750, koruna 19.28, yen 97.90, baht 35, sing 1.4840, HKD 7.75, INR 47.68, China 6.8250, pesos 12.73, BRL 2.1350, dollar index 85.44, Oil $64.25, Silver $10.40, and Gold… $741.67

That’s it for today… Risk takers one day, gone the next day… This is driving me crazy, all this volatility! WOW! The Bank of England just slashed interest rates by 150 BPS! 1.50%! To 3%! WOW! What a cut! I guess that desperate times call for desperate measures, eh?

Source: Change… What Change?

Good day… Chuck had a rough night, so he decided to stay home and try to get some rest. The Pfennig will be pretty short this morning, as I want to try and get it out as close to the regular time as possible. The currency markets were fairly calm yesterday, with the dollar staying in a pretty tight range before rallying some in early trading this morning.

The Euro has lost some ground in European trading as German business and consumer confidence fell more than economists forecast. The Ifo institute’s business climate index dropped to a three year low in July and consumer sentiment slumped to the lowest level in five years. Some currency traders pointed to these latest reports as further proof Europe is slipping into recession and that the ECB will need to cut rates before year end. It is obvious by now that the economies of Europe are weakening, and growth will not be able to match last years numbers. But I still believe Trichet and the other voting members of the ECB will continue their hawkish bias, and I don’t expect any interest rate moves until sometime next year. This should keep the Euro from falling dramatically away from these current levels.

One advantage of writing this so late in the morning, is that I can report on the numbers which came in today. We are expecting a plethora of data today, and have already received the CaseShiller Home price index which continued to drop. But the rate of the fall in US home prices has slowed, giving some economists reason to say the worst is over in the housing crisis. But other economists are warning investors not to read too much into the slowing of the decline in prices. The National Association of Realtors said yesterday that the median price of an existing home fell 7.1% in July from a year earlier, compared with a 6.1% drop in June.

We will continue to receive data on the housing market later this morning, as we will get July’s New Home sales, House Price index, and the 2nd QTR Housr price purchase index released in about a half hour. None of these numbers are expected to show a rebound in the housing sector, but the markets just want to see the numbers do better than the horrible expectations. Again, even if the numbers come in better than expected, they will almost certainly show the housing market is going to continue to slide.

Later this afternoon the FOMC will release the minutes of their August 5 meeting. It will be interesting to read just how fractured the FOMC is with regard to the trade off between fighting inflation and trying to stimulate growth. Bernanke has done an excellent job so far of keeping the members in line with most of them singing from the same song sheet. The recent drop in commodity prices should make Big Ben’s job a little easier, as it will calm some of the inflation fears. I still question just how long the drop in commodities will continue. China and the other emerging economies continue to grow at near double digit rates, which will likely continue to put upward pressure on the price of raw materials. I don’t think inflation is whipped, but is just taking a breather.

Oil prices erased an earlier loss and increased, bringing the Canadian dollar up also. The Canadian dollar was the best performing currency yesterday, strengthening vs. all of the most actively trading currencies. Commodities account for more than half of Canada’s export revenue, so the recovery in oil helped it rally.

Two other commodity based currencies didn’t fare as well, as both the NZD and AUD dollars declined for a second day. The Australian dollar slid toward a four-month low and New Zealand’s currency fell to its lowest in more than a week on speculation investors will continue to reverse carry trades. The overriding fear in the markets right now is that both the AUD and NZD central banks are going to cut rates, making the currencies much less attractive for investors who purchased them for the high yields. Many Asian investors have used these currencies to earn higher yields than what is available in their home currencies, but currency traders now worry that these ‘carry trade’ investors will be exiting these investments as the central banks of NZD and AUD cut rates. The New Zealand central bank has already started down the ‘rate cut’ path, and most believe the RBA will be cutting rates by 1/4 point at their meeting on September 2. If commodity prices continue to fall and the RBA does cut rates, the Aussie dollar will remain under short term selling pressure.

US labor secretary Elaine Chao said the Bush administration will keep pressing China to let the Renminbi strengthen at a faster pace to help close the US trade deficit. The Renminbi has moved up 6.7% this year against the US$ and has appreciated almost 21 percent since the end of its dollar peg in 2005. But recently the Chinese have slowed the Renminbi’s appreciation, letting it slide .4% against the dollar since Chinese leaders stressed on July 25 that maintaining steady growth is as important as combating inflation. US Treasury Secretary Hank Paulson said last week that US lawmaker’s proposals to punish China for depressing the value of its currency might spark an unproductive ‘trade war’. Growth will be slowing in China, but I still think they will be able to maintain a growth rate just under double digits. This rate will be high enough to continue China to allow a slow and steady appreciation of its currency. We have been saying all along that this currency will be a slow and steady performer, and not to expect any quick or dramatic moves. I continue to believe this is the path the Chinese will take.

Like I said at the beginning, this is a short one today. It is getting pretty late and I know many of you like to enjoy their Pfennig with their morning cup of coffee, so I’ll end it here and move on to the currency round up.

Currencies today 8/26/08: A$ .8540, kiwi .6935, C$ .9535, euro 1.4634, sterling 1.8373, Swiss .90670, ISK 83.34, rand 7.8118, krone 5.4086, SEK 6.4087, forint 161.45, zloty 2.2737, koruna 16.76, yen 109.65, baht 34.22, sing 1.4226, HKD 7.8077, INR 43.85, China 6.8510, pesos 10.17, BRL 1.6390, dollar index 77.335, Oil $114.60, Silver $13.32, and Gold… $813.03

That’s it for today… Sorry for the late delivery, but better late than never! Hopefully a little rest will get Chuck back on track, this last round of medicine has been tough on him. Cardinals have an opportunity to charge back into the playoff race tonight, as they take on the Brewers who are just ahead of us in the wild card race. Hope everyone has a Terrific Tuesday!!

Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com

Source: Dollar Range Bound…

The decision was in: Another quarter rate cut. Surprise, surprise. It’s only the seventh rate cut in seven months. Considering unemployment is on the rise, the housing market is still in decline and the credit crisis choking both businesses and individuals – the Fed’s decision was no real shocker to any of our experts.

As Eric said on Monday, “It’s lunacy to believe the Fed has reached the end of this monetary easing cycle. In fact, I am projecting the Federal Funds rate will head to at least 1% or maybe even 0% before this bear market is over in 2009.”

But could the Fed take a break from cutting at the next meeting? Or even more importantly – does it even matter? The dollar has already lost 12% since the Fed started cutting rates (not counting this week’s modest dollar gains). Even if they take a breather at the next meeting, the damage has already been done.

Fortunately, our experts have some solutions. This week, Sean Hyman introduces two FDIC-insured “anti-dollar” investments to protect your long-term portfolio before the dollar drops more. And Mike Burnick has pinpointed the one country that actually looks to profit from another crisis that’s sweeping the globe.

Until Next Weekend,
Kathlyn Von Rohr
Weekend A-Letter Editor

P.S. In just two short weeks, the entire Sovereign team will be down in Panama for our signature event of the year – the Total Wealth Symposium. Thirty three experts will introduce dozens of ways to beef up your portfolio – including building a portfolio with guaranteed returns, planning your estate, upgrading your retirement plan and even moving abroad to start an entirely new life, if that’s your goal. We have just a few seats left, so if you’re still interested, please sign up today before we sell out. Click here to register now.