German Business Confidence Falls...
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In This Issue..

* The euro gives back 1-cent...

* The Economist agrees with Chuck!

* RBNZ takes a shot at kiwi...

* FOMC week!

And Now... Today's Pfennig!

German Business Confidence Falls...

Good day... And a Marvelous Monday to you! Friday turned out to be Fantastico, as I hoped it would, and it ended with a nice surprise retirement party for long colleague, John Kaupisch. I couldn't talk about it Friday, because it was a surprise... But it was real nice, and John was surprised... His last day is July 3... First guy to retire here... I'll probably be the next, but with a 13-year old, I doubt that happens any time in the near future!

The currencies held steady Eddie on Friday, with the euro popping up to 1.5660 at one point, only to end the day around 1.5620. Still, a nice day given all the negativity the euro had been receiving because of the Fed's rhetoric, and other minor stuff in the Eurozone... Overnight though, the euro has gotten treated like a red headed step child (OK no nasty comments, it's just a saying). The German Business Confidence as measured by the think tank, IFO, fell to the lowest level in more than two years this month... Business leaders are feeling the pinch of record Oil prices and the threat of higher interest rates.

This report is much like the Investors Confidence Index that the think tank, ZEW, printed about 10 days ago... Things are slowing down in Germany, the Eurozone's largest economy, but not grinding to a halt like in the U.S. So... It's my opinion that give it a couple of days and this report will be in the rear view mirror, and no one will remember it showed this softness in the economy...

The reason I say that is because... The Fed's FOMC meets this Wednesday... And sometime today or tomorrow, the focus will shift to the FOMC meeting. And I fully expect the FOMC to leave rates unchanged, as opposed to the markets' feelings two weeks ago, when Fed Chairman Big Ben Bernanke threw a cat among the pigeons with his claim to be an "inflation fighter" ... You know how I've printed the words to the song "girl watcher" in the past, with I'm a Fed watcher, I'm a Fed watcher? Well, we could change the words around here and say... I'm an inflation fighter, an inflation fighter, watching inflation go higher, way, way higher! HAHAHAHAHAHA!

Speaking of the Fed... A reader was kind enough to send me some of the latest Economist's views... And it's nice to see that someone else has jumped on my bandwagon that the Fed will have to come back in a couple of months and cut rates, instead of raising them... Let's see what the Economist magazine had to say...

"The Fed will stay its hand to gauge the impact of the tax rebates and effect of surging commodity prices on inflation, but should still cut the fed funds rate by a further 50 basis points before end-2008."

And then they sound like a Pfennig reader here too... "Real GDP is forecast to rise by 0.8% this year and by 1.1% in 2009. Notwithstanding a rise in first-quarter GDP, economic conditions may already be recessionary. No sustained recovery in the housing market is likely until 2010. The severe weakness of domestic demand should help to contain inflationary pressures, but the rapid pick-up in upstream prices this year suggests that inflationary pressures may take longer to ease than we assume."

OK... Well, at least I'm not out on the limb by my lonesome...

With the U.S. stock market going into the tank on Friday, the Japanese yen and Swiss franc were able to gain back some ground... But it would take more than a one day 200 point move down, to really get those Carry Trades unwound, and I'm not sure anyone really wants to see U.S. stocks lose much more ground... Me? It wouldn't mean a hill of beans to my stock portfolio, as I sold every stock I own, except one back in November... But still, stocks going down right now, on top of all the other stuff we have going on, just wouldn't be a good thing to experience.

I do believe that stocks are overvalued that's why I sold when I did, but still, there's always a time and a place for a bear stock market, and this would be an awful time for the bear to wake up... Oh, and the only reason I'm talking about stocks is that they play in the Carry Trade which affects the Japanese yen and Swiss franc... I wouldn't be your LAST choice as a stock guy!

The Indian rupee, which had recently received some wind in its sails and recovered a bit from the sell-off this spring, hit a snag overnight, as it is rumored that inflation has really taken hold of the economy... Now, normally, in this day, the market mentality is to reward a currency that has an economy with inflation, as they view this as simply a currency that will receive higher interest rates. But, it looks like those rules don't apply to the rupee right now.

It appears that stock market losses are leading some to believe that there will be an outflow of funds that will not be offset by an inflow of funds that are attracted by higher yields. I'll keep my eye on rupees here, as this whole scenario has be squirming in my seat!

The Reserve Bank of New Zealand (RBNZ) is once again taking shots at the currency... The RBNZ, last year, kept taking shots at the currency, but the currency had a nice defense shield built up in the yield it was offering, and the currency was able to withstand the RBNZ's shots... Well... They're doing it again... The RBNZ just issued a report showing the economy shrank, which is fine, that's what they've wanted for some time now... But then they decided to go further, and say kiwi would extend its recent decline... OK, they actually said "may extend", but when a Central Bank talks like that, the markets don't hear the word "may"!

And did you see this news about Israel? The Herald Tribune reported on Friday the following:

"Israel carried out a major military exercise earlier this month that American officials say appeared to be a rehearsal for a potential bombing attack on Iran's nuclear facilities.

Several American officials said the Israeli exercise appeared to be an effort to develop the military's capacity to carry out long-range strikes and to demonstrate the seriousness with which Israel views Iran's nuclear program.

More than 100 Israeli F-16 and F-15 fighters participated in the maneuvers, which were carried out over the eastern Mediterranean and over Greece during the first week of June, American officials said."

Oh please let that just be a warning...

But... The reason I talk about this is the news brought Oil prices up by over $4 on Friday, and they are up another $1 this morning... This kind of saber rattling will give Oil speculators even more reason to take a flyer on rising Oil prices... But like I said, Please, let it just be a warning...

The data cupboard is empty today, but will restock tomorrow with the latest Case / Shiller Home Price Index, and Consumer Confidence. Neither one of those should be good for the dollar. We'll also start a two-day FOMC meeting, culminating in a rate announcement on Wednesday. I've always contended that the FOMC doesn't have enough to talk about to take up two days, and therefore, believe that they spend their day playing Battleship! By Joe, you've sunk my Battleship!

I noticed the river in my little river town lapping at the road again yesterday as I drove past, and the thought came to me about the levees breaking up north of St. Louis on the Mississippi River. When those levees broke, the river destroyed a ton of crops on farm land... And knowing that area, it was probably mostly corn... That won't play well with wanting food prices to come down...

Currencies today 6/23/08: A$ .9515, kiwi .7585, C$ .9835, euro 1.5525, sterling 1.9625, Swiss .9580, ISK 82.70, rand 8.0380, krone 5.1625, SEK 6.0480, forint 153.40, zloty 2.1670, koruna 15.55, yen 107.60, baht 33.43, sing 1.3680, HKD 7.8060, INR 42.97, dollar index 73.42, Oil $136.50, Silver $17.24, and Gold... $901.85

That's it for today... Sad news on the radio this morning, as comedian George Carlin has died at 71... What a funny guy! And someone that said what was on his mind for sure! Well, let's see, last week I had someone send me a note telling me not to cry when his Phillies beat up my Cardinals... We won 2 of 3... Same thing happened this weekend, as someone sent me a note telling me not to cry when his Red Sox beat up my Cardinals... Again, we took 2 of 3... So... Maybe I've got something there, let's see who do we play this week? HA! More meetings this week... I'm "meetinged out"! I spent most of Saturday dealing with a broken down automobile... Went out, and ended up on the side of the road... Time to get a new car! As I sat there and called my beautiful bride to come get me, and the tow truck, all on my cell phone, I thought... What the heck did we do before these cell phones? I would have had to walk down the road and find a pay phone, in my hobbled condition! Thank goodness for my cell phone! I rarely use it, except to check baseball scores or to see what time it is, but this time was different!

OK... The last full week of June... Summer officially started on Saturday, so we have that going for us, eh? Hang in there this week, the data should be awful, and the Fed will disappoint those that bought dollars in anticipation of a rate hike... I hope your Monday is Marvelous and your week is Wonderful!

Chuck Butler


EverBank World Markets



Posted 06-23-2008 9:13 AM by Chuck Butler