Talking Stimulus Deux
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In This Issue..

* Pending Home Sales surprise!                
* Eurozone Retail Sales slump!               
* Tax cuts don't create jobs...                         
* Failure to follow through for the A$                                       

And Now... Today's Pfennig!

Talking Stimulus Deux

Good day... And a Wonderful Wednesday to you! Well... I'm here! The Orlando Money Show... And guess what? Looks like I brought that artic cold front that had hit St. Louis, all the way down to Orlando! It's cold here! UGH! Well, not "cold" like at home, but "cold" for here!

OK... Front and center this morning, we had a stock rally yesterday after the Pending Home Sales data printed a surprise number. And since stocks and currencies have been trading together the past few days, (we talked at length about this yesterday) that meant a currency rally as well! But! Neither stocks or currencies could break on through to the other side, break on through, yeah! So... That left them vulnerable to profit taking, and that's exactly what we've seen with the currencies overnight. We'll have to wait a couple of hours to see how stocks open up...

So... I guess a review of the Pending Home Sales data is in order, eh? U.S. December pending home sales rose 6.3%, which as far better than the forecast (0%)! Let's look further into the data release to get an overall feeling of what's up here...

According to the report, Pending Home Sales are now up 2.1% year-on-year, but down by a cumulative 31% since the peak in April 2005. Hmmm... Does this mean we've turned the corner with housing? Well... I'm from Missouri, and I'm going to have to be shown more than just this one report. Pending Home Sales has been barely keeping its head above water for 1 1/2 years now... So, I'll hold out judgment until I see some follow up data... But... Maybe, just maybe, you never know... This could be good...

Another item weighing on the euro this morning is the printing of Eurozone Retail Sales for December, which fell more than forecast. Sales in the Eurozone fell -1.6% in December (-1.4% forecast), and shows that Consumers are saving... This fall in domestic demand, has helped with the inflation front in the Eurozone. But that's about the only good thing going on in the Eurozone's economy. Consumer Confidence, Investor Confidence, and high unemployment are making things difficult for the euro to rise.

But... It's not that it can't rise given this scenario. It happened back about 5 years ago, when Germany (the Eurozone's largest economy and key to overall Eurozone health) was trying to kick start their economy, and things look very similar to this overall outlook for the economy... And... We had the euro moving higher VS the dollar.

It was simply a case of traders and market participants focusing on fundamentals, and seeing the debt creation in the U.S. the dollar was sold... And... As luck would have it, the euro was the offset to the dollar, and voila... Dollar sold, means euro rally!

I can't stress enough about the need for the traders and market participants to once again focus on the fundamentals of debt creation, and money supply... Unfortunately, this isn't the case and hasn't been for some months now, as the Credit Crisis has everyone's focus.

Well, there's some news this morning that's interesting... Looks like there's a chance that G-7 nations might be laying the lumber to China... A former Japanese Finance Ministry official said that the "Group of Seven nations may reinstate their call for China to increase the flexibility of its currency." G-7 meets next week in Rome.

So... Let's take a look at this lineup... First, "the cheater" Geithner, called out China... The IMF's Strauss-Kahn, said the renminbi remained "undervalued", and now, supposedly G-7 will take their best shot at China and the renminbi...

I have to repeat something I've said for years now... They are wasting their time! China will do what it wants to do, in the best interest of their economy... Now, having said that, I too believe the renminbi is undervalued, but me saying that isn't the same as U.S. and IMF officials! I'm just a little old Pfennig writer from South St. Louis!

One of my fave countries, for their strong fiscal position, Norway, will see their Central Bank (Norges Bank) cut interest rates this morning... I'm looking for a 50 BPS rate cut to an internal rate of 2.5%...

So... When I turned on my laptop this morning, the euro was trading at 1.2955... The Retail Sales data is really pushing the euro further down, as it is now trading 1.2860!

Someone took exception with my problems with the new and improved Stimulus Package, saying I wasn't giving the new President a chance... Hmmm... I was simply talking about how much "pork" there was in what to me is simply another "Spending Package"... For instance... There are tax cuts in the package... That's fine, probably worthy... But... Do tax cuts put cash in Joe six-pack's pocket today? Do they create jobs? And when do these get to the tax payer? Probably not for a year! Again... Worthy... But, I'm not seeing what benefit it does for the economy NOW!

The "Risk Takers" saw a reason to crawl behind the rock even further this morning, as Kazakhstan devalued their currency by 18% overnight. Now, this is not a big deal in the overall scheme of currencies, as Kazakhstan's currency wasn't even liquid... But it did put the kyboshes on the other "Emerging Markets" currencies and any rally attempts they might have up their sleeves.

With no Risk Takers, the Japanese yen is back on the rally tracks... I saw a report yesterday, before I left, that one Japanese bank is calling for yen to reach a level of 80 VS the dollar, according to their charts. That's pretty aggressive, as most, including me, believe that at 85, the Bank of Japan comes in with both barrels smoking, intervening, and selling yen to keep it from getting stronger... I picked 85, because that's where the line in the sand was drawn back in the late 90's when yen was this strong...

We get the ADP Jobs data today... Recall that last month, I held out hope that the ADP report would be a good indicator to the Jobs Jamboree, as ADP had changed their methodology to be closer to the Bureau of Labor Statistics (BLS), without the Birth / Death Model! But that didn't hold true the first month... We'll have to wait-n-see if this month's data does a better job of indicating what to expect in the Jobs Jamboree...

Yesterday, I told you about the rate cut and stimulus announcement in Australia... And the Aussie dollar (A$) really took off with the news... But as I said yesterday, I doubted that the rally would last long... And so, it did not... The A$ got as high as .6450 before I left yesterday, and was on an upward move... But this morning, it's back to below 64-cents...

And then finally... Here's what the Wall Street Journal had to say about the Vehicle Sales data that printed yesterday... "Auto makers posted sharply lower U.S. sales for January, putting more pressure on struggling Detroit companies. GM's light-vehicle sales dropped 49%, while Ford was down 40%. Toyota fared slightly better, with light-vehicle sales down 32%."

That's a ton of pressure for the automakers, I just don't see how they're going to get past this... GM, Chrysler, and Ford...

Gold is on the rise again... As it's stay below $900 didn't last long!

Currencies today 2/4/09: A$ .64, kiwi .5055, C$ .8075, euro 1.2865, sterling 1.4380, Swiss .8625, rand 10.10, krone 6.9770, SEK 8.3245, forint 234.45, zloty 3.3620, koruna 22.20, yen 89, sing 1.5090, HKD 7.7540, INR 48.82, China 6.8340, pesos 14.57, BRL 2.3150, dollar index 85.73, Oil $41.44, Silver $12.37, and Gold... $900

That's it for today... This sure takes much longer to get done on the road than it does back home in the saddle! The trip down here was uneventful, and much better than last year, when I had that guy drop his luggage on my head, and then find out we didn't have Hotel reservations! Everything went smoothly... Chris and I played Gin on the plane, like we always do. They are marathon games that usually go back and forth, but yesterday, the cards were flowing my way! My little buddy, Alex, heads back to school today. Let's hope no one takes a swipe at his nose! I have my first talk this morning... I haven't seen the Big Boss, Frank Trotter, yet, and we have to get together before that talk... So, I guess I had better get this sent, and go looking for him! I hope you have a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 02-04-2009 9:10 AM by Chuck Butler