More Baby Steps For A German Economic Recovery...
Daily Pfennig

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In This Issue..

* German unemployment falls!             
* RBA disappoints the markets...            
* China to buy Canadian company...                                
* ISM to print positive?                                      

And Now... Today's Pfennig!

More Baby Steps For A German Economic Recovery...                       

Good day... And a Terrific Tuesday to you! And Welcome to September! Well... Here's a thought to get our engines started this morning... Bill Bonner of the Daily Reckoning ( )had this to add to my ranting about our National Debt going to over $20 Trillion in the next 10 years, due to deficit spending...

"The Obama administration, for example, expects to run $9 trillion in deficits over the next 10 years - and that number is based on a recovery! Imagine what will happen if the economy doesn't recover?"

Now, that's a nice comforting thought to start our day right? NOT! WAKE UP! Morning has broken, and the coffee is on... If you are still of the thought that this is all going to end up seashells and balloons, then you need to stop and smell that coffee!

Oh brother! Looks like I'm full of you know what and vinegar this morning! Let's try to calm down, Chuck, you've only just begun to write, you don't want to peak so soon!

OK... Yesterday, I told you that the Asian stocks had sold off and that risk assets were being taken off the table. But that didn't last long, and by mid-morning, I witnessed a nice currency rally, that wiped out the overnight selling. At one point during the morning a customer called to buy some euros, and when the sales person asked me for a price, I said, "you know, they may want to come back tomorrow morning, after the overnight markets beat the euro up, like we've so many times lately."

But wait! That did not happen last night! So, I was wrong! The euro is getting some real love this morning after German unemployment fell in August, which was totally unsuspected. Euros and Swiss francs are the only currencies I see that have gained on the news this morning. So the Big Dog, euro, must have told the other little dogs to "stay on the porch"... Stay Rex!

German unemployment fell by 1,000... OK, now I know that this has the same feeling as removing a bucket of sand from a beach, when unemployment in Germany is 3.46 million! But, I never said that Germany's economic recovery was a tidal wave! It's smoking embers, that are in need of stirring, some small twigs, and leaves... My beautiful bride is an "expert" and getting a fire started like that, I should send her over to Germany, that would really kick the domestic demand to another level! HA!

Baby steps... That's the way we're going here... So, we've had IFO and ZEW think tank reports on Confidence all print stronger... We had the GDP surprise on the upside... And there was something else last week, but it slips my mind right now. The point here is that the Eurozone's largest economy is waking up... We just have to hope it doesn't hit the "snooze" button, now!

A reader sent me a note yesterday asking if I thought there would be a collapse of the Eurozone and thus the euro... If I had $5 for each time these stories have hit the streets, I would be sipping on a multi-colored drink in a tall glass with one of those tiny umbrellas, in a tropical setting... The point I'm making here is that on the outside Spain and Italy have problems... But what's changed? These two had problems before they joined the Eurozone, and have had problems since joining the Eurozone... Me? I totally believe that these two get down on their knees each night and give thanks for being allowed to join the Eurozone!

So... In case you missed my answer in there... I don't see that happening, at least not in the near future...

OK... Enough of that! The Reserve Bank of Australia ( RBA )met last night, and left rates unchanged, as suspected they would, and the following statement regarding their thoughts on the economy was relatively upbeat... However, the markets were looking for an indication of "when" the RBA would hike rates, and that didn't happen... So... The markets were disappointed, and when they are disappointed with a Central Bank, they take it out on the currency! So the A$ got pounded overnight.

Now... Aussie GDP for the 2nd QTR is going to print tonight, I would have to think that the RBA maybe had a peek at the report, and thus their gearing down the interest rate hike talk... So... We could be looking at even weaker A$ prices tomorrow morning... Unless, that is, 2nd QTR GDP is as strong as it was once believed it would be!

Did you see where Canada printed a HUGE Deficit last week? Not a good thing... But, the Canadian balance position has teetered back and forth between Surplus and Deficit, but recently has remained in the red... You know me and deficits, so, I put a red mark next to the Canadian dollar / loonie... But then, you hear news like last night... Get this! PetroChina has agreed to pay C$ 1.9 Billion for a stake in a Canadian oil sands project. PetroChina will buy 60% of Athabasca Oil Sands Corp.'s MacKay River and Dover oil-sands projects.

That's 1.9 Billion Canadian dollars / loonies that will have to be purchased... And You would have to think that China will be spending the "few loose dollars" they have in their pockets, which would put pressure on the green/peachback!

Canada is still in a recession, here folks... But... Could these be cheaper levels given the merger and acquisition activity? Only the shadow knows!

OK... So, here I am, 1 hour from when I began writing this morning, and all that glossy and shiny talk about the euro's rally is fading... The Big Dog has lost 1/4 euro in the past hour... So... I wasn't wrong after all!

OK, you'll love this, or maybe you won't, but I do, and since I'm writing this letter, I get to talk about it! HA!

Here's the title of the story that flashed across the screen, and of course, caught my attention... "Goldman Sachs Wrong on Economic Recover, Macro Hedge Funds Say"

You've got me on this one! I've got to read on... "Paul Tudor Jones, the billionaire hedge-fund manager, who outperformed peers last year, is wagering that Goldman Sachs Group, Inc. and Morgan Stanley to it wrong in declaring the start of an economic recovery."

"If we have a recovery at all, it isn't sustainable." One Hedge Fund Manager said... Calling this a "ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later."

WOW! These guys must be reading the Pfennig! OK, I kid, because these guys would never bet caught with the Pfennig in their hands... They probably put it between the pages of the "Economist" so that others think they're reading the Economist! HAHAHAHAHAHAHA!

Speaking of "must be reading the Pfennig"... I saw a thing that came across my desk yesterday that 57% of Americans would vote out every politician if the vote were taken right now! WOW! I didn't know the Pfennig was read by so many people! Recall, I said weeks ago, to "fire them all"... Well, let's hope that 57% grows to 95%, and Americans really do go through with their threat to vote them all out, if they continue to take us down the road to socialism / fascism / collectivism...

OK... You may recall a couple of weeks ago, I started asking you questions about the stock market rally, and it's ability to continue on... I truly believed that the stocks were overbought, and the P/E ratios were out of control... Now, I see quite a few jumping on that bandwagon, and calling for a stock market reversal.

Do we really think the Gov't will allow that to happen? Didn't the President himself, say that he thought it to be a good time to buy stocks... Isn't that sort of like a wink and a nod from the President that everything will be OK?

Beyond those conspiracy thoughts, let's just say the markets get to go where the participants take them ( I know, it's not reality, but let's just play along ), and stocks begin to reverse their gains from March... I would think it to take an adverse affect on the currencies and their gains since March too... Throw Commodities in there too!

Now, in the old days, I would look at a stock sell off and say, currencies will rise... "Honey, put on the red dress tonight, we're going out on the town!"  but... These aren't the old days... This is the new improved way of throwing all risk assets into the same barrel! And I don't like it at all!

Ok... The Norwegian krone, traded with a 5 handle yesterday for the first time in a month of Sundays! It has traded back over 6 overnight... But, it was a good strong move from the krone yesterday nonetheless!

Well, today, we'll see the ISM Index (Manufacturing) from August, and for the first time in 19 months, it is expected to be above 50! New readers might wonder what I'm talking about here... But it's simple... 50 is a line in the sand that says any number below it represents contraction of manufacturing, and any number above it represents expansion of manufacturing... So, if it prints above 50 as expected one would say that manufacturing must be recovering...

Let's look at that closer... Come on, closer, closer, closer! We're experiencing a global recession, and global trade has been sketchy at best... But here's U.S. manufacturing showing  expansion... And... The rise has been quite steady since March... With March printing at 36.3, April 40.1, May 42.8, June 44.8, and July 48.9... See the steady rise?

What else has happened since March? That's right, thank you for paying attention there in the back of the class! Yes, the currencies have been rallying VS the dollar... So, the dollar is much weaker than it was in March... The dollar index was 89.05 on March 5th, and today it is around 78... So... How did manufacturing / exports rise during this period of time? Because the dollar was weaker!

Let's keep that in mind, eh? For if we get an adverse affect on the currencies from a stock sell off, this recovery in manufacturing could go kaput!

We'll also see Pending Home Sales for July, and Vehicle Sales for August... Cash for Clunkers will push up the Vehicle Sales... But what happens next month?

Gold has backed off by about $8 in the past two days... It's a dip... Therefore it must be an opportunity to buy at a cheaper price! I was reminding all my friends that we spent the weekend together at a lake, that I had told them to buy Gold $400 dollars in price ago... I was booed out of the room at that point, because you see, they didn't buy it $400 dollars in price ago!

And on that note... I'll head to the Big Finish!

Currencies today 9/1/09: A$ .8355, kiwi .6820, C$ .9125, euro 1.4295, sterling 1.6220, Swiss .9440, rand 7.7975, krone 6.0275, SEK 7.15, forint 192, zloty 2.8780, koruna 17.9110, RUB 31.8325, yen 93.10, sing 1.4430, HKD 7.75, INR 49, China 6.8303, pesos 13.44, BRL 1.88, dollar index 78.35, Oil $69.69, 10-year 3.38%, Silver $14.75, and Gold... $949.50

That's it for today... Well, it's been an unusually cool summer here in St. Louis... We had two separate weeks of hot weather, and that was it! It normally is much hotter, with very high humidity... I wonder what that means for this coming winter! UGH! Just found out yesterday that I won't be going to Marco Island this December to speak like I had the previous two years... UGH!  September is the last full month of baseball, and with the Cardinals in first place in their division, this should be a good month! There are two middle of the week day games in September, and I always enjoy those! So... Summer may be coming to an end, as along as September takes a long time to work through, I'll be OK! All righty then, let's get going on this Terrific Tuesday, the first day of September!

Chuck Butler
EverBank World Markets

Posted 09-01-2009 7:28 AM by Chuck Butler