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!

U.S. S&P 500 equity futures were down 0.7 percent , which increased demand for those currencies which typically gain in times of risk aversion and weighed on higher risk currencies such as the Australian dollar.

Sterling pared earlier steep losses, however, after Bank of England minutes showed policymakers voted unanimously to maintain their quantitative easing target.

Analysts said Federal Reserve Chairman Ben Bernanke on Tuesday dented sentiment when he said U.S. interest rates would stay low for some time.

“The dollar has found a bit more of a stable footing, which is largely a function of what Bernanke said yesterday,” Bank of Scotland Treasury market economist Kenneth Broux said.

“There is no reason for the Fed to hasten its way out of QE, which should dampen some of the recent excitement on equity markets,” he added.

By 1208 GMT, the euro fell 0.5 percent to 132.55 yen , while it dipped 0.1 percent against the dollar at $1.4200 .

Traders reported hefty options activity in euro/dollar at $1.4200, set to expire later in the day. A holder of a digital option will get payout if spot is above $1.4200 at expiry, while other expiries at $1.4200 are thought to total 1 billion euros, market participants say.

On Tuesday the euro hit a seven-week high on Tuesday at $1.4278 , close to its peak for the year.

The dollar fell 0.3 percent against the yen to 93.36 yen .

Reaction in the euro was limited, however, after data showed euro zone industrial orders data unexpectedly fell 0.2 percent in May, compared with forecasts for a 1.9 percent rise month-on-month.

“It looks not really consistent with what we had seen for the euro area…so I have some doubts if we do not see a substantial revision of this May reading at a later stage,” said Juergen Michels, economist at Citigroup.

STERLING OFF LOWS

Sterling fell 0.2 percent against the dollar to $1.6410 , well above an earlier low around $1.6311.

The minutes from the Bank of England’s latest policy meeting showed a 9-0 vote to maintain the 125 billion pound asset-buying total and keep interest rates at 0.5 percent.

The market took this as a signal that UK quantitative easing could be at or near an end — suggesting the economy may be starting to recover — and sterling gained as a result.

“The MPC minutes should be bullish for sterling,” Bank of Scotland Treasury’s Broux said.

The Australian dollar fell 0.4 percent against the dollar to $0.8154 and by 0.4 percent against teh yento 76.14 , dented as oil prices fell below $65 per barrel.

“Levels look quite stretched for these big gainers,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Investors awaited further comments from the Fed’s Bernanke later on Wednesday, this time before the Senate Banking Committee.

Bernanke will repeat his testimony before the Senate Banking Committee at 1400 GMT, and then take questions

July 22 (Reuters)

Good day… We had just an amazing weekend of weather here in St. Louis, and this morning is shaping up to be another beautiful day. Friday turned out to be a beautiful day for those who have taken our advice and diversified their holdings out of the dollar. Risk aversion was placed on the back burner again, and investors moved money back out of the dollar into higher yielding currencies. The dollar and yen got sold but all other currencies rallied, and investors also turned back toward gold pushing the metal above $950 for the first time in over a month.

So what caused all of this confidence? First, the housing data released Friday morning in the US showed a slight pick up in both building permits and housing starts. While the housing markets have a long way to go, the data have given investors an indication that construction may have found a bottom. Not to throw cold water on investors confidence in the building numbers, but while the residential market may be bottoming out, the commercial market continues to tumble. I spoke to a good friend over the weekend who is a commercial real estate developer down in Memphis. He told me that his development pipeline has completely dried up, and even the brokerage side of his business has slowed. The only part of his business which has picked up is the marketing of foreclosed properties. He has shifted his concentration to helping banks and lenders ‘work out’ of commercial projects which they have taken back onto their books. The economy has kept most companies from opening new stores, and many continue to shut down under performing ones. My good friend tells me most of the people he talks to don’t believe the commercial real estate market will turn around until the end of next year. Not good news for the banks who are still reeling from the residential real estate bust.

But I digress. Investors weren’t focused on the commercial real estate market on Friday, they were just happy to see a possible bottom in the residential sector. Their confidence was boosted further after rumors spread that CIT would likely be saved from bankruptcy. Sunday these rumors were confirmed as it was reported that the CIT Group board had reached an agreement with bondholders that should keep the struggling business lender out of bankruptcy court. According to the Wall Street Journal, the deal won’t permanently fix the company, but it buys time for the lender to restructure itself.

We have blasted the administration in the past for the way they are handling the economy, so to be fair I will have to give them kudos for the way they handled the CIT meltdown. Instead of throwing good money after bad (the taxpayers have already given CIT $2.23 billion of TARP funds), Geitner and Bernanke passed on an AIG type bailout, and even stayed away from arranging a Merrill Lynch style ’shotgun wedding’. Instead, they did exactly what they should have done and let the markets rescue CIT. It is still yet to be seen if the restructuring will ultimately work, but it is good to see the private capital markets are being left to their own accord, without intervention by the Fed. (Yes, I know the Fed is still involved, but not AS involved as they could have been!!)

The Euro climbed on Friday on some good economic reports. It was reported early Friday that Europe posted a trade surplus for a second month in a row. May’s trade surplus rose to 800 million euros as exports fell less than imports. The data add to evidence that commerce with the rest of the world will likely pull the Euro region out of the recession. Another report showed German producer prices fell at the fastest rate in more than 40 years last month as energy costs declined and demand weakened. The June decline of 4.6% from a year earlier was the biggest drop since December 1968. Lower producer prices are a good for the European economy where industrial production rose for the first time in nine months in May and manufacturing orders in Germany increased the most in two years.

The rally by the Swiss franc was dampened by intervention as the Swiss National Bank sold the currency to halt its rise. The sales, which occurred over the past few weeks, were the SNB’s first solo currency market interventions since 1992. While they have been able to beat back the currency markets for now, the SNB doesn’t have deep enough pockets to fight a long protracted war against the currency market. As Chuck has pointed out several times in the past, intervention can move the market in the short term, but it takes a very large amount of reserves and an iron willed effort to fight the longer term trend. The Swiss franc will likely keep pace with the Euro, as both gain vs. a falling US$.

As investors regained their confidence, the higher yielding currencies of Australia and New Zealand advanced. Both currencies moved up over 1.5% vs. the US$ and hit the highest levels in two weeks vs. the Japanese yen. The Canadian dollar also rallied, completing its first five-day increase since May. A run up in crude oil helped strengthen the loonie by over 4% vs. the greenback last week.

Chuck is waking up in Vancouver this morning, his favorite city located north of St. Louis. While he spent most of the day yesterday traveling, he was able to send me the following from David Rosenberg, who is usually pretty good with his thoughts….

“It is the second anniversary of the credit crunch and after all of the fiscal and monetary policy initiatives, the best we get are “green shoots” and now that story is getting stale. Go back two years and you will see that the Fed Funds rate was 5.25%, Today it is zero. The fiscal deficit was 2% of GDP two years ago. Today it is 13%. Mortgage rates were 6.5%. Today they are 4.7%. Homeowner affordability with all the government measures is 70% stronger today than it was then too. The Fed’s balance sheet then was $850 Billion. Today it is bloated at $2 Trillion. The government has tried just about everything. Or has it? What if we were to tell you that the one policy tool that is unchanged since the summer of 2007 is… The U.S. dollar? It is exactly the save level now, on any trade-weighted measure, as it was back then. The greenback is struggling at the 50-day moving average, and this could well be the next policy shoe to drop… ”

David makes an excellent point. In spite of all of the negative numbers with regard to the US economy, the value of the dollar is basically unchanged over the past two years. This is bound to change, as US policy makers will have to let the dollar fall in order in the face of rising inflation and skittish foreign investors. As we have repeatedly pointed out, the administration has three choices with regard to the tremendous debt load which has been built up in recent years. 1) They can increase revenues (yes, they are increasing taxes, but these increased taxes are already spent on the new health care program). 2) They can decrease expenditures (big government is back, expenditures aren’t going to fall anytime soon!). 3) They can let the dollar fall in order to pay back the debt with cheaper dollars (the most likely scenario!!).

As always, we encourage you to protect yourself from the eventual drop in the value of the dollar by diversifying your investments into other currencies and gold or silver.

We start what looks to be a pretty light week of data here in the US with the Leading Indicators index which will be released later this morning. This is the Conference Board’s gauge of the economic outlook for the next three to six months and is expected to show an slight increase. If so, it would be the first time the index has shown three consecutive months of increases since 2004. But even those that are expecting the index to show another rise are preaching caution. Most economists believe that even if the index indicates the recession is ending, recovery will be slow. High unemployment and cautious consumers will keep the US economy under pressure.

After today, the markets will have to turn their attention to the weekly jobless claims to be released on Thursday as tomorrow and Wednesday will only bring the ABC consumer confidence number and MBA Mortgage application data neither of which are closely watched. We will also get more data on the housing market on Thursday with the release of Existing home sales data. Friday will close the week out with the U of Mich confidence number. As I said, should be a rather slow week on the data front. Now on to the currency wrap-up:

Currencies today 7/20/09: A$ .8113, kiwi .6535, C$ .9057, euro 1.4216, sterling 1.6522, Swiss .9366, rand 7.9646, krone 6.3411, SEK 7.7407, forint 192.16, zloty 3.0236, koruna 18.1879, yen 94.61, sing 1.4399, HKD 7.750, INR 48.255, China 6.8320, pesos 13.26, BRL 1.9261, dollar index 78.92, Oil $64.74, 10-year 3.69%, Silver $13.7175, and Gold… $952.98

That’s it for today… As I said in the opening paragraph, the weekend weather was just phenomenal here in St. Louis. I competed in another triathlon yesterday, and did ok; not a personal best, but ran through some pretty bad leg cramps. Congratulations to my training partner, Matt B. who ended up the overall winner. And a big congrats goes out to Tom Watson, who just missed an 8 foot birdie put to become the oldest person to win a major. It is an inspiration when a guy almost double the age of his competitors can go out and beat all but one! Hope everyone has a great start to your week and a Marvelous Monday!!

Source: Risk Aversion Disappears Again

Good day… Chuck got an early start on a two week hiatus from the desk, so you will be stuck with me writing the Pfennig for the next two weeks. But don’t worry, you will still get a small dose of Chuck over the next week as he typically emails me his thoughts while on the road (I call it Pfennig Pfodder). Risk aversion dominated the currency markets overnight, as terrorists set off two separate explosions in Jakarta and investors moved money back into the ’safe havens’ of the US$ and Japanese yen.

Chuck wrote about this move yesterday, believing the bad news regarding CIT would probably cause a risk reversal. But the US stock market shook off the CIT news and rallied higher after a big earnings report by JP Morgan and a somewhat positive statement by Nouriel Roubini. Roubini, the New York University economist who is credited with predicting the financial crisis, said in a speech yesterday that the US economy might be close to the bottom. The stock jockeys took this statement along with the positive earnings reports and ran stocks up. But Roubini later tried to caution these bulls against reading too much into his statement, and reminded everyone that he has not changed his thoughts on a US recovery: “I continue to see a shallow, below par and below trend recovery.”

Those looking for a quick v shaped recovery will be disappointed, as we continue to believe the recovery here in the US will be more of an L shape as our economy struggles to recover. After all, who is going to propel the US economy to recovery? In past recessions, we have been able to depend on the US consumer to pull us back out. But the poor consumer is now facing the highest unemployment rate post WWII combined with falling home prices and much stricter lending policies. And with the dire fiscal position of most states matching that of the federal government, the tax burden placed on almost all taxpayers will likely be rising, chewing up more of consumers disposable income. We are no longer be able to rely on US consumers to ‘borrow and spend’ our way to GDP growth (which is actually a good thing!!). Consumers are tightening their belts, and saving a larger percentage of their income; good news for the consumers, but bad news for the economy.

The administration has tried to take over where the US consumer left off by borrowing record amounts of money and injecting it into the economy through stimulus packages. But recent data bring into question whether or not this stimulus is having the desired effect, and many are now questioning whether any fiscal measures can pull the economy out of recession. With the credit markets still tight, and the negative outlook for consumer demand, no amount of government intervention seems able to stop the decline in jobs and quickly pull the US out of this recession/depression. The reason is that the ‘multiplier effect’ of the stimulus money is too low. Typically when the government injects funds into the economy, the effect of each dollar they spend is multiplied several times over as it moves through the lending / spending cycles. It works like this: $1,000,000 given to a bank by the Fed is lent out to consumers and business who then spend the funds on goods and services. The companies who sell the goods and services place a majority of these funds back into the bank who then turn around and lend them back out, starting the cycle all over again. But recently neither the banks or the consumers are acting ‘normal’. Banks who have received stimulus funds are using them to shore up balance sheets and keeping them in reserves. Consumers who have received stimulus funds, or are strong enough to qualify for loans have been doing the same thing; using the funds to pay down debts and saving a larger percentage. So the multiplier effect of each dollar injected by the administration has been much smaller than in years past. While some in the administration are calling for another stimulus package, others are now realizing the impact of government stimulus will continue to be decreased by the low multiplier. The government should probably just let the recession take its course, and avoid adding more debt to our already over burdened tax payers.

But ‘big government’ is back, and the current administration obviously feels it is their job to make government even bigger. Chuck had this to say about this weeks earlier announcement of a new government run health care program:

“The Big Debate right now is a National Health Care program… I’ll come right out front and center and say that I’m not for it, which shouldn’t surprise anyone that’s been reading this letter very long. But there’s someone else who should be more important a figure against this than I think the media is reporting…

I’m talking about Douglas Elmendorf, the Director of the Congressional Budget Office who, under questioning by members of the Senate Budget Committee, had this to say…
“Instead of saving the federal government from fiscal catastrophe, the health reform measures being drafted by congressional Democrats would worsen an already bleak budget outlook, increasing deficit projections and driving the nation more deeply into debt.”

He went on to say… That “bills crafted by House leaders and the Senate Health Committee do NOT propose the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

But… I doubt they listen to him… For when it comes to spending and driving up the deficits.. They haven’t listened to former CBO director, Alice Rivlin… And they haven’t listened to former Comptroller General, David Walker… Why the current CBO director now?”

Data released yesterday showed the number of Americans filing claims for unemployment benefits fell last week to the lowest level since January. But like last week, these jobless claims were skewed by the Labor Department’s ‘adjustments’. As I explained last week, the automakers typically lay off workers during July, so the BLS adds back thousands of jobs in order to offset these seasonal layoffs. But this year, the auto plants laid off these workers months ago, so the seasonal adjustments are adjusting away actual job layoffs, not just temporary automobile layoffs. These distortions will likely continue for the next few weeks, with the weekly numbers climbing back over 600,000 in August when the seasonal adjustments end.

The TIC flows were also released yesterday and showed International demand for long term US financial assets weakened in May. Investors sold the most Treasury notes and bonds in six months, with the net Long-term TIC flows dropping almost $20 billion. The ‘experts’ had predicted a rise of $16.5 billion in purchases. But as investors dumped long term Treasuries, purchases of US stocks in May were the strongest since January of 2008. So the impact of these flows were minimal on the value of the US$. The administration has to be worrying about the direction of the TIC flows, as it continues to bring record amounts of Treasuries to the markets. If investors shy away from the new debt, interest rates will be driven higher putting further pressure on our ’stealth recovery’.

After reviewing the numbers, I spotted another item which should be cause for concern. The report showed foreign governments were moving from the longer term maturities of Treasury notes and bonds into shorter term bills which have a maturity of less than one year. Foreign governments continue to be worried about the future ability of the US to maintain our record deficits. The Chinese economy continues to grow, and is propelling them to a much more important status among global leaders. Chinese Premier Wen Jiabo continues to express concerns regarding his country’s US Treasury holdings, and officials in Japan, the second largest investor, have also begun to express concern. The administration is calling in the big guns to try and assuage China’s concerns. Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials at a summit this month about how the US plans to keep inflation in check over the next few years. The summit is the first high-level gathering of its kind since President Obama took office.

China reported yesterday that their economy grew 7.9% in the 2nd QTR, which was greater than the 7.7% forecast by economists, and the 6.1% that was booked in the 1st QTR. This was the first acceleration in growth in more than two years, and comes on the heels of a $585 billion stimulus package which was targeted at increasing infrastructure and getting credit flowing again. The positive growth number will likely cause them to start raising rates in 2010 according to a Bloomberg news survey. Economists predict the one-year lending rate will climb over 50 basis points after remaining steady for the rest of the year. China is the only one of the 10 biggest economies that is expanding, and confirms what we have been saying for some time: China will be the engine which propels the global economy out of recession.

Chuck noticed the good numbers out of China before heading out yesterday, and sent me the following:

“This news must be manna from heaven for Australian commodity exporters… As I’ve said for some time now… China’s economic strength strong demand for raw materials, of which Australia is not only geographically positioned to supply China with raw materials, but has the raw materials to supply to China! And demand for Australian raw materials is a proxy for commodities as a whole… And, will underpin the A$!”

If you agree with what Chuck is saying regarding the A$, it may be a good time to buy some more as the AUD$ slid below .80 overnight due to risk aversion. Both the AUD$ and NZD$ fell against the dollar and the yen as investors shifted to safe haven currencies. The New Zealand dollar fell the most in two weeks after Fitch Ratings cut the nation’s long term sovereign credit rating outlook to negative. Fitch said the nation’s deficit is large and a “stronger fiscal adjustment than currently planned” may be needed. First, I think everyone should treat anything coming out of the rating agencies with caution. But I agree that the nation’s deficit is too large, but the news coming out of China should go a long way toward pushing these commodity exporting countries back into the black. As Chuck says above, as China expands the commodity currencies should stay well bid.

Before I head to the big finish, Chuck wanted me to make this announcement to all the Pfennig readers….

After 2 long years of looking for the next MarketSafe CD to issue, I decided to put together the countries that have been in the news lately. So… Introducing: The EverBank MarketSafe BRICK CD! This will be a 3-year CD that will have FDIC protection, 100% Principal Protection, and 100% of the upside of the combined values of the currencies from Brazil, Russia, India and China! If the combined values of these 4 currencies should go down in 3 years, you’ll get your principal back!

To invest in this new MarketSafe CD, you need to either go to: www.everbank.com where after reviewing the offering you will be able to apply for the CD right on line, or by calling the trading desk @ 1-800-926-4922 for the details.

Currencies today 7/17/09: A$ .8000, kiwi .6444, C$ .8945, euro 1.4100, sterling 1.6291, Swiss .9276, rand 8.102, krone 6.3926, SEK 7.8203, forint 194.08, zloty 3.0682, koruna 18.3992, yen 93.83, sing 1.4504, HKD 7.7501, INR 48.68, China 6.8316, pesos 13.58, BRL 1.9318, dollar index 79.49, Oil $61.93, 10-year 3.56%, Silver $13.19, and Gold… $934.45

That’s it for today… The EverBank kickball team pulled out another victory last night in a tightly contested match. Happily, none of our players were injured, but a player on the opposing team did a faceplant which still has everyone on the desk laughing. The weather here in St. Louis has turned fall like, and we are supposed to have record lows over the weekend. Should be perfect for a triathlon I am competing in Sunday morning. Hope everyone has a Fantastic Friday and a Wonderful Weekend!!

Source: Risk Aversion Returns

Oil hovered around $61 a barrel as worry about the strength of global fuel demand was offset by news of strong economic growth in China.

The U.S. dollar initially fell to a six-week low against major currencies after JPMorgan’s reported record investment banking and trading results, providing further evidence of recovery in the financial system, but weak U.S. manufacturing data and concern about the impact of the possible failure of U.S. lender CIT re-introduced a bid for safer-assets.

CIT’s talks about aid with the U.S. Treasury ended Wednesday night, leaving the lender to its own devices, and endangering the future of some of the one million customers of the lender to small businesses. U.S. Treasury debt prices rallied after three days of falls partly on a resulting flight-to-safety bid

A fall in a reading of the Federal Reserve Bank of Philadelphia’s index of business conditions in the U.S. Mid-Atlantic region to minus 7.5 in July from minus 2.2 the month before also helped push up bond prices.

The benchmark 10-year U.S. Treasury note was up 20/32 in price to yield 3.53 percent. The 2-year U.S. Treasury note was up 4/32 in price to yield 0.96 percent.

“We are in a difficult position at the moment because we are caught on the cusp between is this a sense of sustainable recovery or a possibility of a relapse?” said Richard McGuire, fixed income strategist at RBC Capital Markets in London.

“There’s no real convincing evidence yet on either side,” he said.

European shares hit a one-month closing high on improved sentiment following JPMorgan’s results and data that showed the number of U.S. workers claiming new jobless benefits fell last week.

But U.S. stocks faltered after a run-up this week that pushed the benchmark Standard & Poor’s 500 Index up 6.1 percent, the best three-day rally following a surge after U.S. equities hit a decade low in March.

Shortly after 1 p.m. (1700 GMT), the Dow Jones industrial average was up 3.18 points, or 0.04 percent, at 8,619.39. The Standard & Poor’s 500 Index was down 1.30 points, or 0.14 percent, at 931.38. The Nasdaq Composite Index was up 3.41 points, or 0.18 percent, at 1,866.31.

The FTSEurofirst 300 index of top European shares ended 0.4 percent higher at 866.81 points, fourth straight advancing session.

The number of U.S. workers filing new claims for jobless benefits fell last week to their lowest since January, but the seasonally adjusted government data was again distorted by earlier layoffs in the automotive industry.

“There’s a lot of conflicting data here, and I think that the market is reflecting that,” said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Asian shares across the region outside of Japan rose 1.3 percent to their highest since mid-June, while Japan’s benchmark Nikkei underperformed with a rise of 0.8 percent.

China reported economic growth quickened to 7.9 pct in the second quarter, beating forecasts.

The U.S. dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.02 percent at 79.299.

The euro was up 0.14 percent at $1.4124, while against the yen, the dollar was down 0.74 percent at 93.56.

Crude oil prices fell as investors tried to decide how high oil prices can rise given a still fragile global economy, said Mike Fitzpatrick, vice president at MF Global in New York.

U.S. light sweet crude oil fell 49 cents to $61.05 a barrel.

“$60 is the fulcrum balancing the price lever that tips whenever one contention or another is bolstered by news or economic data,” Fitzpatrick said.

Gold slipped as the dollar pared losses against the euro, with lacklustre demand for physical stocks of the metal also pressuring prices. Spot gold prices fell $1.20 to $937.25 an ounce.

NEW YORK, July 16 (Reuters)

Good day… And a Wonderful Wednesday to you! Another All-Star Game, another win for the American League… I truly believed that with Tim Lincecum going for the National League, that we would win this year… But that didn’t work out… I did truly enjoy the game though, and got to experience it with sons, Andrew, and Alex, with Darling Daughter Dawn’s husband, Jerry… A truly memorable night…

The currencies slowly moved a bit higher yesterday, and the euro is back to 1.40 this morning… The move came as stocks rebounded some, after reports of a better than expected earnings report for Goldman Sachs. Hmmm… Now, doesn’t that just tick you off a little? Here’s Goldman Sachs who just months ago, changed to a Bank Holding Co, so it could take TARP money, then paid it back a month ago, and now, prints a Moon Shot profitable earnings report… I guess I should be happy for them… Unfortunately, I smell a rat…

It’s as if the Risk Aversion crowd just took their dollars and yen and went home! They are nowhere to be found this morning! The euro is pushing toward 1.41 again, which… Lately has been a tough row to hoe for the euro… Every time it gets close to 1.41 or even past it, albeit briefly, it comes back… So, it will be interesting today to see if the euro can add to the overnight gains.

The negativity toward the U.S. dollar and the so-called green shoots is really building steam once again.

We saw Retail Sales for June yesterday… The “experts” believed the report would print at a positive .4% gain, following up May’s .5% gain… And that’s exactly what it did! Just goes to show you that no matter how many people are unemployed, and how bad the recession / depression is… Consumers still spend! And that’s what makes the world go around, as my dad used to say! The Butler Household Index (BHI) was a little fuzzy this month, as I haven’t exactly seen the shopping bags come into the house, but I have a funny suspicion that they were there! Lots of UPS Deliveries for sure! So… The BHI believed that June Retail Sales would be probably better than expected… ( I wrote that yesterday when I thought Chris had bailed on me… Only to find out he had already written the Pfennig! UGH!)

The German Economic Sentiment, as measured by the think tank, ZEW, printed weaker yesterday for the current month… This report had trended upward in recent months, but with the recent loss of momentum in stocks, you can understand the reason for the weaker print.

And down under… Reserve Bank of New Zealand (RBNZ) Gov. Bollard, gave a speech Tuesday night, that, as far as I’m concerned pretty much drives the final nail in the New Zealand rate cut coffin… Bollard’s speech was titled, “Savings, Investment, Funding Markets Are Key To Recovery.” In the speech, Bollard really made a point of expressing his fear of reigniting the housing market… Therefore, I was sure after reading the speech that the RBNZ will NOT cut rates further, since the Gov. fears reigniting the housing market! And… We all know, even if Big Al Greenspan still doesn’t admit to knowing, that those low interest rates ignite housing bubbles!

You know, I just won’t let Big Al Greenspan off the hook will I?… NO! Never! You can’t make me do it! Pink Floyd said that money is the root of all evil today… But… I believe that Big Al Greenspan is the root of all evil today!

OK… On to other things!

There are reports this morning of a major earthquake hitting New Zealand… 8.2 magnitude, I believe I heard… If so, it would cause a short-term loss for kiwi, but afterward, it would probably be a springboard for the currency, given the re-building needed… More importantly though, I truly hope this isn’t as bad as first reported and that there isn’t any loss of life.

Aussie dollars are back to 80-cents again this morning… I’m sure there was some moves from kiwi to Aussie on the earthquake news…

Chris talked a bit about this yesterday, but I thought it was very important to give it to you again…

With three months left to go in the budget year, the U.S. government’s deficit has hit an all-time high of $1 trillion. The Congressional Budget Office predicted that by the end of the year, the deficit will be 13% of the country’s GDP. That compares with a recent high of 6% of GDP in 1983 during the Reagan administration and 30.3% in 1943, when the U.S. spent a huge amount of money to fight World War II. OUCH! But, that’s nothing folks! This budget Deficit is going to get larger and larger! And IF all the beans are counted… This will be quite ugly!

But, that just means more supply of Treasuries that will have to get auctioned folks… More and more… And it just scares the bejeebers out of me, what will take place…

OK… Before I go to the Big Finish… I want to talk to you about two things that hit the newswires yesterday… I get a lot of flak from some readers whenever I talk about the direction the U.S. Gov’t is taking our “republic”… But that doesn’t stop me, no sirree Bob!

Here’s the first one…

Increased taxes for households with an annual income of more than $350,000 could pay for an overhaul of the U.S. health care system, according to a plan supported by House Democratic leaders. Proposed measures include a 5.4% surtax on couples earning more than $1 million a year. Charles Rangel, chairman of the House Ways and Means Committee, said the wealthiest Americans were singled out to pay the extra taxes because that option imposes “the least amount of pain on the least amount of people.”

I guess it all depends on who you are talking about with regards to people experiencing pain!

And then there was this…

U.S. government officials are weighing a plan that would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes instead, sources familiar with the administration’s thinking said on Tuesday.

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes but would continue to live in the property for several years, the sources told Reuters.

Officials are also considering whether the government should make mortgage payments on behalf of borrowers who cannot keep up with their home loans, tapping an unused portion of a $50 billion housing aid kitty.

As part of this plan, jobless borrowers might receive a housing stipend along with regular unemployment benefits, the sources said.

Remember the famous line by President Reagan when he said the scariest words someone could hear… “I’m from the Government and I’m here to help”…

I see that Gold has finally shown some life this morning, adding $12 overnight… A reader sent me a link to a story about the manipulation of the Gold price, which I truly believe has been going on for years, but keep it in my back pocket only to bring out when it makes sense to do so… Here’s a snippet of the report by GATA (Gold Anti-Trust Action Committee Inc.)

New York and Tokyo commodity exchanges have been permitting their gold futures contracts to be settled not in real metal but in shares of gold exchange-traded funds (ETFs). This essentially allows the gold shorts (and the exchanges themselves, which guarantee futures contracts) to transfer their obligations to third parties that may not have the metal they claim to have and that, in any case, are operated by the investment banks running major short positions in gold.

Thus it is likely that the paper claims to the world’s supply of gold are greater than even GATA has suspected — that the gold supply is even more oversubscribed and that “paper gold” is being created at an ever more frantic rate to suppress gold’s price.

OH BOY, now that should stir up the drink, eh?

Currencies today 7/15/09: A$ .8030, kiwi .6475, C$ .8910, euro 1.4090, sterling 1.6450, Swiss .93, rand 8.1550, krone 6.3965, SEK 7.7820, forint 193.75, zloty 3.0425, koruna 18.38, yen 93.60, sing 1.4515, HKD 7.75, INR 48.60, China 6.8317, pesos 13.66, BRL 1.9460, dollar index 79.41, Oil $60.50, 10-year 3.50%, Silver $13.34, and Gold… $936.95

That’s it for today… A late night for yours truly, got me into work later than usual this morning, thus the lateness of the Pfennig! There was a very interesting moment in the pre-game ceremony last night, that took me by surprise… It occurred during the talks by the past Presidents… I was also very disappointed in the way our Greatest Cardinal, Stan, the Man, Musial was presented… This was our chance to show the world what an unbelievable talent he was on a ball field, and off the field as a gentleman… We blew it! Can’t go back and correct it now! A great moment by our catcher, Yadier Molina, getting a two-out RBI hit… And some spectacular defense by all-world player, Albert Pujols, but after a first inning error. UGH! OK. It’s over… The All-Star week is over… Time to go to Vancouver! See you there! Wait, I don’t leave until Monday! OK… Then let’s make this a Wonderful Wednesday!

Source: Currencies Rebound

Good day… And a Marvelous Monday to you! A Home Run Derby Monday to boot! I have no Idea what’s going on this morning, as I just woke up, and it’s very late in the morning! I was very careful to set my alarm last night, and I’ve never been one of those people that hit the snooze button when it goes off, but here I am, waking up late… UGH!

So… I’m writing from home, and then I’ll shoot in to work… We’re short handed this week, so, I’m sure everyone will be arriving to the office, not see my car, and be a little ticked… So, I’ve got a surprise for them, something they’ve never seen… Me come in late!

Well… It looks like Risk is under pressure once again… And the only thing I can see that’s causing this Risk Aversion, is the Corporate Earnings Season… For instance we get 4 banks reporting this week, Goldman (yes, remember they’re a bank holding company now… They ex-chief, and ex-Treasury Sec. Paulson, made sure that the change was made so that Goldman would qualify for TARP last year!) We also have JP Morgan, Bank of America, and Citi…

Data wise, there are a few top shelf reports out this week, and the thought of them showing more dandelions instead of green shoots, is probably wearing heavily on the risk assets this morning too.

So… The euro is sitting just below 1.40 this morning at 1.3985, so no real harm being done at this time, but still the bias is to sell the risk assets like currencies and commodities as we start the week.

You know, I’ve harped about this for so long now, that I sound like a broken record, OOOPS! For the younger crowd that would be a scratched CD! What I’m talking about is the fact that the risk assets like currencies and commodities being thrown into the same barrel has stocks… And how I was just wishin’ and hopin’ and thinkin’ and prayin’ that we would return to the fundamentals of these asset classes not having anything in common with the stocks! I just knew… No wait, I can’t say that… I just knew, not that I know anything on the inside, that is… That stocks were going to be under pressure from the Corporate earnings season, and with the “link” still in place… That wouldn’t be good for currencies and commodities… Let’s hope I’m wrong!

The one piece of data we get today is the Budget Statement… Last month, the Budget Statement printed an awful deficit of -$189.7 Billion (May)… Historically, June prints at a surplus… But Historically, so did April, and April was no where near a surplus this year! Year-to-date receipts for the Gov’t are down 18%, and Year-to-date outlays are up 19%… That doesn’t bode well for “history to come into play here”…

Last week, on Thursday, reported Friday in the Pfennig (thanks Chris!) was the Weekly Initial Jobless Claims, which printed the lowest level for this data series in more than 6 months, at less than 600K! But still, the number is still staggering, and one of the reasons that Commercial construction in the U.S. is set to decline 16% this year, followed by a 12% fall in 2010. No jobs… no need to build offices for the “ghost jobs’ that the BLS adds each month, because… THEY DON’T EXIST!

No need to get me started on the BLS (Bureau of Labor Statistics) this morning… I have to be clear and concise to get this out the door and me off to work!

Well… With the risk aversion back on the table… The two main beneficiaries remain to be Japanese yen and the U.S. dollar… Swiss francs are on the “kids table” but still a part of the beneficiary crowd…

The High Yielders like Aussie, kiwi, and South Africa get taken to the woodshed, when Risk Aversion comes to town… The Brazilian real is seeing a bias to sell, but for the most part has hung in there… Of course I remember saying that exact line early last fall, only to watch the real play catch up, until the turn-around in March of this year. So… I guess, what I’m saying is be careful!

So! Did you hear that Russian President Medvedev, showed off the “new world currency coin” at the G-8 meeting last week? He said.. “We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies. So… Here it is! This is a symbol of our unity and our desire to settle such issues jointly.”

He then pulled a new coin out of his pocket and displayed to the attendees… Now… Don’t get all tied up and twisted over this at this point. This was simply a “symbolic” move, there aren’t mints all over the world rushing to get these coins minted and out the door… But, if you get the “symbolic” part, then you understand what Medvedev was attempting to do here… He was simply showing the G-8 attendees that if they really thought about it, they could see the need to move from a dollar reserve system, and to help them visualize it, he had a coin to pass around!

I can’t believe that right now, with the whispering campaign to get an alternative reserve currency, that the dollar isn’t getting sold, as I like to say, like funnel cakes at a State Fair! I guess the whispering will have to get louder, for this to make any real waves….

You know, I’m not for this “global currency”… I just wanted to make that clear! I’m not for removing the dollar as the reserve currency, for I know all of the “perks” that go along with it being the reserve currency! I’m just here to report the facts, and give my opinion / market commentary on how I think it will affect things…

I do believe, however, that given our deficit spending, and every growing to the moon National Debt, that the dollar deserves getting whacked, it’s how things are done! Treasuries will get their comeuppance too one day… You can’t just keep printing and printing and thinking that “buyers” will be there at the auction every time you print more… It’s not going to happen that way… At least in my thoughts it won’t!

OK… Time to go to the Big Finish… I know, I know, little shorter than usual this morning… But Hey! It was still chock-full-o-news!

Currencies today 7/13/09: A$ .7750, kiwi .6225, C$ .8605, euro 1.3980, sterling 1.61, Swiss .9240, rand 8.2930, krone 6.4830, SEK 7.9025, forint 198.10, zloty 3.1475, koruna 18.62, yen 92.10, sing 1.4650, HKD 7.75, INR 49.08, China 6.8328, pesos 13.71, BRL 1.9965, dollar index 80.16, Oil $59.96, 10-yr 3.30%, Silver $12.50, and Gold… $912.70

That’s it for today… Went to the Futures Game yesterday, to sit through a 4-hour rain delay… UGH! Let’s hope the rain stays away for the next two days! Home Run Derby tonight, All-Star Game tomorrow night. The family is all going to the Fan-Fest today, while I’m at work… Hey! Somebody has to work! HAHAHAHAHA! My beloved Cardinals went into the All-Star Game break on a good note, winning 6 of 10 on the road trip to end the 1st half of the season… This will be a very busy week for me, lots of writing to get done, and all the All-Star festivities… I go to my new oncologist this afternoon for the results of my scans on Friday, so all that and doctors stuff on top! UGH! Oh well, next Monday I head to Vancouver for the Agora Financial Wealth Symposium, their 10th year anniversary of the conference! And then I head off to vacation! So… Busy, busy, busy… Time to hit send, Hope your Monday is absolutely Marvelous I tell you!

Source:  Back To Risk Aversion!

Spot gold was bid at $912.50 an ounce at 1417 GMT, against $908.45 an ounce late in New York on Wednesday. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange rose $3.50 to $912.80 an ounce.

Gold sold off on Wednesday in line with other commodities, slipping to an eight-week low, after the U.S. Commodity Futures Trading Commission said it was considering a clampdown on excessive speculation in commodities.

Afshin Nabavi, head of trading at MKS Finance in Geneva, said the slip was met with some light physical buying in the Far East and Europe.

“We saw some small demand out of the Far East this morning,” he said. “But India and the Middle East is still very quiet.”

“Also, the U.S. dollar is a bit weaker today,” he added.

The dollar gave back some of the previous session’s gains on Thursday as equities firmed in Europe and U.S. stock futures rose, denting interest in the currency as a haven from risk.

A recovery in stock markets after a five-day losing streak, gains in industrial commodities such as oil and base metals and a less cautious tone to currency markets suggested recent sessions’ heavy risk aversion may be abating.

Oil’s tick higher also helped support gold, which can be bought as a hedge against oil-led inflation.

Demand for gold investment products such as exchange-traded funds — a major support of prices earlier in the year amid volatility in other markets — remained sluggish, however.

Holdings of the world’s largest gold ETF, the SPDR Gold Trust , declined more than 10 tonnes on Wednesday, while those of ETF Securities’ ETFS Physical Gold product slipped 12,500 ounces 0.4 percent.

OUTPUT FALLS

In supply news, South Africa, the world’s third largest gold miner after China and the United States, said its output of the metal fell 10.5 percent in May from a year ago.

Among other precious metals, platinum was at $1,104.50 an ounce against $1,096, while palladium was at $235 against $231.50. Both metals are primarily used in car manufacturing as a component in catalytic converters.

Traders of palladium in particular were cheering news from China that its passenger car sales rose 47.7 percent in June from a year earlier.

Chinese cars are usually petrol-fuelled, meaning they use a higher proportion of palladium than platinum, which is a primary component in diesel catalysts.

Dealers say as palladium is still relatively expensive, it is unlikely to immediately post significant new gains, although platinum has met some interest.

“Even though there is very little obvious buying taking place right now, platinum is still managing to hold its head above $1,100,” said one analyst, adding strong turnover in Shanghai suggests good Chinese buying at these levels.

Elsewhere silver was at $12.85 an ounce against $12.84.

LONDON, July 9 (Reuters)

Good day… And a Tub Thumpin’ Thursday to you! I’m late, I’m late! I don’t believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today… I’ve got to play catch-up! So, let’s get this Tub Thumpin’ Thursday going!

Well… Let’s see… G-8 never had the opportunity to shoot fireworks because China’s leader had to return home to deal with the street riots going on in his country. So… The call for a replacement for the dollar as the reserve currency will have to wait for another day! And, with that news, the dollar got to remain in the sunlight, and bask in the glory of being the reserve currency and so-called “safe haven” another day…

There was added Risk Aversion yesterday when it was reported that an Australian shipment of coal to China was cancelled… This sent bad vibes through the markets for the currencies and commodities with the thought that China was putting the brakes on their buying of raw materials, and that their recovery had not taken hold like many had believed…

But… Overnight, calmer heads have prevailed. You see, it was my opinion when I heard that news yesterday, that it was simply one bad shipment to a customer that was having difficulties… Not ALL OF CHINA! And then overnight the data came out… This was one shipment, maybe 150,000 tons of coal… Australian coal shipments to China on a monthly basis run about 3 million tons! I truly believe that Australia’s trade with China is on terra firma, and this was a one-off deal that went bad… I also believe that the sell-off of the Aussie dollar (A$) was completely overdone… Completely!

I don’t know this to be a fact… But, given the relationship of the Asian investors and the A$, I would think the Asian investors to be licking their chops to have the opportunity to buy the A$ at these lower levels! Buy on the dips, right? Don’t I always say that to be a prudent investment strategy?

Of course it didn’t hurt that U.S. stocks rebounded yesterday a bit on the news that Alcoa’s losses weren’t “as bad as expected”… Talk about setting the bar low! It’s not like ALCOA didn’t still have a LOSS! But, don’t get me started on this mental giant thought process that has a grip on stocks these days… “oh, don’t worry, you only burned down 1/2 of the house, I would have expected it to all burn down!”

I’ve got to leave that alone before I really burst! Let’s see, what can get my mind off of that subject… OH! The Bank of England (BOE) just announced that they would keep rates unchanged. Well, my goodness, what else would we expect them to do? Their base rate is .50!

Here in the U.S… The Obama administration is trying desperately to nip in the bud, the whispering campaign for another stimulus package… “No one in the administration is talking about a second stimulus at this point,” said Robert Nabors, deputy director of the Office of Management and Budget. However he also mumbled something about how the President is not “ruling anything out”…

I don’t care what they say… I’ll believe it when I see it… And I still believe that the Gov’t will believe that another stimulus is needed…

One of the discussions that I had with my fave economist the other day was about “delaying the inevitable”… I’ve talked about this before, but for new readers, I thought I would give them a dose of “Chuck’s Thoughts” this morning… (HA! As if they don’t get that every day!)

This “delaying the inevitable” is all about the TARP (troubled asset relief program) and how it all did was allow bad banks to continue to be bad banks longer, with toxic waste in their portfolio… This, even in the face of a suspension of the mark to market rules! Bad Banks should have been sent packing, then… And now, all we’ve done is let them hang on to cause even more collateral damage!

OK… I’ll get back to the daily discussion now…

It looks as though the auction of $35 Billion in 3-year Treasuries went smoothly, which is another reason the dollar was strong yesterday… Every time one of these auctions go smoothly, the “deficits don’t matter” crowd all point and say… “see, we told you, that foreigners will always come to the auction to buy Treasuries, so it doesn’t matter what we run the deficit up to”…

Right! You just keep thinking that, and see where it eventually gets you! Ty sent me a note yesterday from an article he was reading, that plays nicely with this discussion… So… Let’s play Marvin Gaye, and see what’s going on!

“For now, the Treasury continues to find takers for government savings bonds at low interest rates. But somewhere between here and infinity lies a point at which American debt reaches unsustainable proportions, at which investors will balk at continuing to finance the American expenditures absent a higher return on their investments. Then, everything could change quickly, with interest rates soaring and the value of the dollar plummeting, as foreign investors lose faith in its fundamental value.

“We’re running this $10 trillion gamble that interest rates aren’t going to rise,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. “If they do, we could end up in a very difficult situation.”

Hey, you think so, Kenneth? My goodness, we have a new “Mr. Obvious!” I would think that we are already in a very difficult situation, given the fact that when the you know what hit the fan the U.S. had no war chest to use, like China did… Why? Because we didn’t think “deficits mattered”… Dealing with problems from a position of strength, it would have made a HUGE difference from the get-go!

However, having said that… I believe that a larger problem is still on the horizon for the U.S. and the “deficits don’t matter” flag wavers… And Hey! It’s not going to happen overnight… It’s going to be a slow, dragged out, problem that goes on for years, and then finally snaps! I’m talking about the entitlements and the retiring baby boomers… And more specifically when I’m talking about entitlements, I’m talking about Medicare!

The Big Boss, Frank Trotter, showed me a graph that he came across from the Concord Coalition the other day that illustrated this… While I wasn’t shocked, having seen this all in the movie I.O.U.S.A. and in the book of the same name, there it was again staring me in the face…

The reason I tell you all this, is that the Current Administration has no other choice but to allow the dollar to weaken considerably over the years so that these deficits that “didn’t matter” can be paid off with cheaper dollars… And it won’t be this administration that has to deal with it… That’s why this one and the previous one aren’t concerned about the size of the National Debt…

Ok, enough of all that… I didn’t mean for this to be gloom and doom! Let’s move on…

The data cupboard has the Initial Weekly Jobless Claims for us to view today… I expect for the weekly number to remain above 600,000, and the Continuing Claims to have risen… Though this all sounds bad, the markets have become comfortably numb with this unemployment data… It will take something really BIG to slap the markets in the face and say WAKE UP!

And then, finally… The Japanese yen has really been on a tear this week as the Risk Aversion crowd dominated the markets… I find it very strange that Japan is considered a “safe haven” currency, given their national debt problems… And their once “Ace in the hole” the Trade Surplus, is taking on water… But… This is what the markets do, and they are never wrong! However, there’s a road block ahead for the yen, as it trades with a 92 handle this morning… And the road block is in the form of the Bank of Japan. (BOJ).. It was reported that last night the Bank of Japan issued a statement to the markets that “they were checking FX levels”

That’s Central Bank parlance especially coming from the BOJ, for… We don’t want the currency to get any stronger, and we’re just letting you know that we’re ready to intervene if you don’t settle down. Sort of like when grandma would tell you that if you didn’t settle down she would send you to the woods to find your switch… Believe me you only didn’t settle down once!

And when the Risk Traders come back and push the Risk Aversion crowd to the back of the room… Again, we’ll see yen sell off again… So be careful here!

Currencies today 7/9/09: A$ .7845, kiwi .6305, C$ .8650, euro 1.3980, sterling 1.6260, Swiss .9250, rand 8.11, krone 6.4925, SEK 7.8590, forint 196.70, zloty 3.1150, koruna 18.55, yen 92.90, sing 1.4580, HKD 7.75, INR 48.71, China 6.8317, pesos 13.47, BRL 2.00, dollar index 80.21, Oil $61.29, 10-year 3.39%, Silver $12.95, and Gold… $915

That’s it for today… Well… I got the news from the eye specialist yesterday regarding my left eye… The tumor and the fluid on the eye is gone, they successfully shrunk it and removed it… Unfortunately it left a ring of “stuff” on my eye, and my eyesight from that eye will never get any better. Of course, I still have my right eye, so I’m not completely bummed… My cutie little granddaughter, Delaney Grace came by to see me yesterday, she wanted me to come “sit by her” She’s almost 2 now, and saying her ABC’s, and singing songs, and she showed me how she knew her right from left now… Such a little joy to be around… I’ll get to spend a whole week with her in about 10 days when we all go on vacation together… Can’t wait! Well, my lateness has put me way behind this morning, I had better get going… Don’t forget… Today is going to be a Tub Thumpin’ Thursday no matter what!

Source: Risk Returns… Slowly

Hard commodities weakened across the board, hit by global economic concerns and worries a potential clampdown on speculation in U.S. energy and commodity trading could hurt buying of the asset class.

Spot gold slipped to a low of $915.20 an ounce and was bid at $918.00 an ounce at 1414 GMT, against $923.30 an ounce late in New York on Tuesday. Meanwhile platinum was at $1,109 an ounce from $1,132, having touched a low of $1,099.

The dollar climbed broadly as growing risk aversion prompted buying of the precious metal as a safe store of value. The U.S. unit, weakness in which boosts gold’s appeal as a currency hedge, is currently the metal’s chief driver.

“In the last few weeks, the relationship between gold and the dollar has been fairly slavish,” said Stephen Briggs, an analyst at RBS Global Banking & Markets. “But gold has even been underperforming that, if you look at the euro price.”

He said seasonally weak demand in the third quarter and a tailing off in investment buying are also pressuring the metal.

Gold buying in India, the world’s largest bullion consumer, was weak as the dollar strengthened against the rupee, making the metal more expensive for local consumers.

Meanwhile gold jewellery sales in Dubai were down 30 percent in June from a year earlier, as high prices and the economic downturn hit buying.

U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange slipped $10.70 to $918.40 an ounce.

CAUTION

On the wider markets, sentiment was cautious, with European shares falling for the fifth straight session. The losses reflected a slide in Wall Street stocks to a ten-week low on Tuesday, amid fears over economic weakness.

Deutsche Bank analyst Michael Blumenroth said stock market weakness could be seen as a sign of fresh trouble to come for the economy, which may prompt further gold buying later in the year.

Industrial commodities slipped amid doubts over the outlook for the global economy, with both oil and industrial metals trending lower. The more industrial precious metals — platinum, palladium and silver — all posted losses.

News the U.S. futures market regulator, the Commodity Futures Trading Commission, was considering a clampdown on excessive speculation in commodities by restricting holdings of big players also hurt prices, dealers said.

“The CFTC announcement is definitely putting some pressure on metals, as well as on energy,” said one European precious metals trader.

The news prompted speculation that the approval of proposed U.S. platinum and palladium ETFs could be delayed until the CFTC had finished its deliberations.

“We do wonder whether the proposed U.S. listing of platinum and palladium ETFs – under consideration by the SEC at present – can possibly be approved until the CFTC’s investigations are concluded,” UBS strategist John Reade said in a note.

Palladium was at $234 against $239. Silver fell below $13 an ounce for the first time since May 5 to hit a low of $12.91. It was later at $12.95 an ounce against $13.10.

LONDON, July 8 (Reuters)