A New Year!
Daily Pfennig

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In This Issue..

* Currencies range trade...                      
* With a bias to buy dollars...                    
* Recession deepens in Eurozone...                        
* India cuts rates...                                   

And Now... Today's Pfennig!

A New Year!                     

Good day... Happy New Year! And a Happy Friday to one and all! A Fantastico Friday, I bet it will be, as most people are still on "holiday". I hope your New Year's celebration went well, mine did, spent with good friends, after a simply scrumptious dinner! Yesterday, we spent the day with friends again, as good friend Rick, had everyone and their brother to his new house to celebrate the New Year... I'm worn out! Good thing this is a quick shot work day, and then onto the weekend, because I'm spent!

Well, enough of all that! The currencies traded in a very tight range on Wednesday, and I expect more of that today. The bias has been to buy dollars going into the year-end, and it looks as though that might be the case today, as there's been no data to speak of in the U.S., while the Eurozone printed a very weak manufacturing index report, indicating that the Eurozone's recession is deepening. Of course if we compared apples to apples the bias would be to buy euros, but since there hasn't been any "real" economic data in a couple of days from the U.S. this report from the Eurozone gets all the attention.

Normally, the first Friday of a month is Jobs Jamboree Friday, but with most Gov't workers on holiday, the Jobs report won't print until next Friday. The Weekly Initial Jobless Claims dipped below 500K last week at 492K, but you would have to think that the dip had more to do with the holidays and offices being closed than any reversal of the job loss trend. But you know the mass media, they were all over this report, smiling like Cheshire Cats, as if... As if 492K job losses the previous week was something, to, smile about! UGH! These guys... And gals... I tell you, they must go home at night and either they are brainwashed, and feel good about what they do each day, try to make the U.S. Consumer feel good... Or they go home and vomit!

OK... I'll go onto something else, that commentary was not going in the right direction! Wait! I just read the Economic Calendar incorrectly for today! We will get some data... The ISM (manufacturing) index will print for December, and is expected to fall even further from the previous month's 36.2 print... Remember, of for those new to class, an index reading below 50 represents contraction in the industry... One below 45 for two consecutive months is a lock on indicator of recession... So, that's where we are here in the U.S. dealing with a recession and we keep wishing, and hoping, thinking and praying, that it will not turn into a depression.

As I told you on Wednesday, it looked as though a return to Risk Aversion, was creeping into the markets once again. And that return to Risk Aversion, has had a different affect on the currencies this time. This time, Japanese yen has not blossomed / rallied on the Risk Aversion. (recall that Risk Aversion causes Carry Trades to be unwound, thus supporting yen) Yen has traded back to 91 and change this morning...

But again, the price action this week can't be used as any indicator as to what will happen when everyone returns to the desk with bright shiny faces next week. I think that you need to re-read Wednesday's "Chuck speak" to get a handle on what to expect the first 3 months of this new year... You can always read archives along with the current Pfennig at: www.dailypfennig.com

So... It looks like 13 will become 14 in 2009, as the Czech Republic, once viewed as being on the fast track to euro adoption, will adopt the euro on November 1 this year. It's about time! The other two countries viewed as being on the fast track to euro adoption, Hungary and Poland, have really run into a tough row to hoe, but they'll get there eventually... In fact, I'm still of the thought that the Eurozone / euro will grow to 25 members in the next 10 years... Of course there are those "Chicken Littles" running around squawking that the Euro won't be around next year, much less 10 years from now... Just shows to go you just how different I think from "others"!

And what about Gold in 2009? Well, first of all that was some roller coaster ride that Gold had in 2008, reaching for the stars of $1,000 only to fall back $250, and then rebound $130 to close the year at $880... Well... Going back to my thoughts about an "Obama bounce" in the first quarter of this year, I would have to think that Gold will not have much support given that scenario... But... If my thoughts about the second half of the year hold true, then Gold should have a smashing 2nd half to 2009... So... The "play" in the 1st half of the year, and especially the 2nd QTR, is to look to buy the dips... But that's only if you believe my scenario for 2009... If you don't, then steer clear of Gold and every other commodity!

I see more and more calls for $2500 Gold... WOW! I think to myself, that, would mean that the U.S. economy is really suffering, and if Gold would every reach those "crazy" levels, the dollar must be just about at its intrinsic value... (get it?) So... In my mind, I have to hope the price of Gold doesn't go to $2500, because then we would have a worthless dollar... And I know that there are some out there that truly believe that I "want" the dollar to be worthless, that's not the case... I live here, I need dollars for gas, groceries and giggles...

Well, it didn't take long for another Central Bank to get back to the rate cut table in 2009, as India's Central Bank cut 50 BPS to 5% this morning. With a lot of Central Banks around the globe now pretty much with rates cut so close to the bone, I don't know that we'll continue to see rate cut after rate cut in 2009... For instance, the Reserve Bank of Australia (RBA) could very well be finished with rate cutting... I guess the real question on everyone's mind is how long will the U.S. Fed keep rates close to zero? I would only hope that the answer to that question is "not very long"! But you know the Fed, they most likely will leave them too low for too long, thus fueling the next bubble, whatever that might be...

Of course, the other day I said that U.S. Treasuries were the next bubble to pop, so Treasuries can't be the "next bubble" as they are already a bubble! Just think about all that Treasury issuance that's going to be needed in 2009 to finance the Gov't's goings on...

Speaking of the Gov't's goings on... My friend, Bill Bonner, always has a unique way, and one that I totally enjoy by the way, of explaining things... And here's Bill talking about the current recession and what the Gov't has been doing about it... (www.dailyreckoning.com)

"The bad news is that government meddlers all over the world are making the situation much worse. They don't have any choice. They have to react. And the only things they can do are the usual claptrap remedies. More government spending. More giveaways.
More bailouts. All they are doing is trying to avoid the 'creative destruction' that a real economy needs... and postponing the inevitable adjustments and corrections that must be made.

"But it gets worse. Because the world's main debtor - the USA - is also the custodian of the currency that most of the world's debts are denominated in. And Ben Bernanke is hell-bent on making sure that the US does not follow the Japanese example...or the example from the U.S. in the '30s. He won't stand for deflation. He'll wants to fight it in the worst possible way, because he wants to go down in history as the first and only central banker to beat it. What's the worst possible way to fight deflation? Print money."

I went back to January 2008 to see what I had said last year at this time just for grins... This is somewhat interesting, folks... I talked about how we could see a dollar rally taking the euro back to 1.40 (it was around 1.48), and that Gold would hit $900 soon...

I'll finish up today's letter with a snippet from the NYT that Chris Gaffney sent me on Wednesday... I read it and said... "sounds like this writer, reads the Pfennig!" I bet you'll think the same, but here it is....

"he answers to those questions will depend on the availability of credit in all its forms - home mortgages, personal and business loans and bonds sold by corporations, states and municipalities. For now, many banks are hoarding money rather than lending it. Their holdings of cash have nearly tripled to just over $1 trillion in the last three months, according to Federal Reserve data."

All of the money supply the Fed has pumped into the markets is currently being held by the banks.  The Fed just keeps pumping out more money supply trying to get the banks to open the tap.  But the pressure behind the tap continues to increase; and once the banks crack it open I think we could see a huge flow of funds back out into the markets.  The banks won't be able to close the taps, and we will see the inflationary flipside of this temporary deflation.

The Fed says it will be able to 'pull back' some of the excess liquidity it is pumping into the markets, but it will be like trying to stop the flow of water after a damn breaks."

OK... Onto the Big Finish for this first working day of 2009!

Currencies today 1/2/09: A$ .6950, kiwi .5810, C$ .82, euro 1.3950, sterling 1.45, Swiss .9395, rand 9.44, krone 6.9650, SEK 7.78, forint 190.50, zloty 2.99, koruna 19.22, yen 91.20, sing 1.4550, HKD 7.75, INR 48.75, China 6.83, pesos 13.74, BRL 2.3160, dollar index 81.47, Oil $42, Silver $11.12 and Gold $870

That's it for today... Please notice that I will no longer publish the price of Thai baht, and Icelandic krona, as we no longer are able to deal in those currencies. January is not one of my fave months, as it is long, the sunshine is short, and it is too darned cold for me! But, my mom used to tell me that I wouldn't enjoy spring without January... Speaking of spring, just two months away from spring training, and I'm already making my plans! Once again, I will be taking my family to spring training during their spring break (since they're all teachers, or in Alex's case a student, they all get of the same time!) I'll also be going a few days at the end of the month with my friends, Rick and Duane, and maybe an additional friend, Kevin, this year! With visits, for work, to Florida the beginning and near the end of the month, I've worked it out to spend a good part of the whole month in Florida... Don't know how that worked out, but I'm not complaining! I was watching the Rose Bowl yesterday, and thought, man, that looks beautiful there, I would like to attend a Rose Bowl some time... Next year the National Championship game will be in the Rose Bowl, maybe my beloved Missouri Tigers can... Nah... Now that's a pipedream! But dream I can, and doesn't cost me anything! OK, I've carried on enough, time to hit send... I hope you have a Fantastico Friday, and a healthy and prosperous New Year!

Chuck Butler
EverBank World Markets

Posted 01-02-2009 9:31 AM by Chuck Butler