A Loss Of Confidence In the U.S.?
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In This Issue..

* Non-dollar currencies rally...                     
* Euros and Aussie dollars lead the pack...                        
* $1.42 Trillion Deficit for 2009!                                   
* TIC's data gets ignored again!                                                                                  

And Now... Today's Pfennig!

A Loss Of Confidence In the U.S.?                              

Good day... And a Marvelous Monday to you! Another "lost" weekend for our college and professional football teams! UGH! The sun finally came out this weekend. YAHOO! It felt so good to be in the sun again... The TICs data was something that needed to be dealt with on Friday, but once again the markets ignored it... I'm telling you, this smells like, walks like, and talks like a gag order... OK... Let's get going this Marvelous Monday!

The non-dollar currencies all drifted on Friday, with the dollar seeing a bit of buying... But that's all been thrown to the curb this morning, as the non-dollar currencies, for the most part, are in rally mode VS the dollar.

The Big Dog, euro, has really pushed the envelope this morning, rising from 1.4860 to 1.4945 as I write... The Aussie dollar (A$) is also working alongside the euro pushing the dollar down. I just put the finishing touches on both the Review & Focus monthly letter, and my "other letter", the Currency Capitalist, yesterday... I had some strong words for the Gov't now and in the past that has allowed this weakness in the dollar. And trust me, if the U.S. Gov't wanted a strong dollar, all they would have to do is say so with conviction, and not this wamby pamby stuff they try to get away with just to put a governor on the dollar's decline... Think about this for a minute... It's true, it's really true... Your Gov't doesn't care about the currency... The currency that we all use, and think it will always be there for us to spend...

WOW! I really got carried away there, eh? I don't need to get up on the soapbox already on a Monday morning! But... These are the things that need to be said, and I'll say them! Not like our wamby pamby media, that will talk about the weak dollar, but never what causes it!

The Gov't finally got around to printing their final Monthly Budget Statement that would end their fiscal year (Sept 30th)... The final total was $1.42 Trillion in the red... That's 10% of GDP! That's the highest level since World War II! And remember when I kept telling you that the expenditures for this administration in 2009 would come in at $3.5 Trillion dollars? Well, that's just about where they came in... And with revenues dropping 16.6% from 2008, we are left with this atrocious Deficit of $1.42 Trillion! And don't forget (here I go sounding like an infomercial again) that the next 10 years is forecast to add an additional $9 trillion to our national debt!

OK, so what's up with the TIC's data from Friday? Remember now... The TIC's data is an accounting of the net foreign purchases which are needed to finance that atrocious deficit... So how'd we do? Well... The big picture of all flows in and out for the last 12 months turned negative and is just shy of the worst level recorded, which was in 1982. OUCH! Central Banks seem to be buying about the same amount, which isn't a good thing when you consider the increase in Treasury issuance... But the real fall off has come from the Moms and pops... The private investors if you will... So... Is this just an aberration, or... It could very well be a loss of confidence of global investors in the U.S.... 

There was a hint of this loss of confidence on Friday in the China Daily newspaper... And it wasn't the fact that the story was in the paper, it was the fact that the story was front and center for everyone to read... It was a quote by Big Al Greenspan, our former Fed Chairman who said that he "fears the budget deficit of the U.S. more than the collapse of the dollar."  Hmmm...

What the heck is Big Al talking about? He knows well and good that the Deficit is the cause of the dollar depreciation! And just the fact that the Chinese put it front and center on their daily newspaper tells me that they are making fun of Big Al, and at the same time telling their readers that they should avoid dollars...  I don't know what it tells anyone else, but that's what it tells me!

Recently, I've talked about seeing signs of a return to fundamentals... I really do believe that we're headed in that direction once again, which would be like manna from heaven to your Pfennig writer! Fundamentals are much easier to understand that these crazy trading themes that go against normal logical thinking!

Well... The boys over at PIMCO, the world's largest bond fund, seem to believe that "Fundamental forces are set to put downward pressure on the dollar as the recovery gathers momentum. Those forces include massive budget deficits, bets the Federal Reserve will keep borrowing costs near zero for an extended period, and prospects for a double-dip recession in the U.S."

Sound about right to me! Given those fundamentals for the dollar, and take away the "flight to safety" trading theme, you've got a Betty Crocker award winning recipe for a dollar decline!

The Bank of Canada (BOC) meets tomorrow... I'm going out on a limb here, to say that I think the BOC will remove that statement they've repeated for a few months now that interest rates would remain at current levels near zero until the 2nd half of 2010... Why do I think that, when the BOC has been so adamant about this statement in previous meetings? Ahhh grasshopper... First of all Australia has already raised interest rates, and their central banker has already talked very hawkish about future rate hikes... The other "Commodity Countries" of Norway, New Zealand and Brazil, are also beginning to talk up rate hikes... So, in my mind, the BOC will begin to "feel the heat" of their Commodity Brothers raising rates, and the only way they'll be able to move then is to remove the statement about leaving rates unchanged... NOW!

Getting back to the euro for a minute... I find this move higher by the euro VS the dollar this morning to be quite impressive, given that the Financial Times (FT) had an article saying, "It was time for the ECB (European Central Bank) to get serious about an overvalued euro"... Funny, the timing of this article... The Eurozone Finance Ministers are meeting today... And in the face of all this... The euro rallies!

And as I mentioned earlier in the letter, the A$ is stronger this morning... It's my feeling right now that the negativity toward the U.S. dollar is really seen and magnified in the performance of the A$... And why not? You've got the country that was not affected by the financial meltdown, a country that was the first to raise interest rates, a country that is rich in the commodities that China demands, and on a sidebar, China is forecast to grow 9% in the 3rd QTR, and a country that has a Central Banker that has given the green light for appreciation of the A$ VS the U.S. dollar!

The data cupboard is full of 2nd tier data prints this week, so I really don't think the markets will get any direction from the likes of PPI, Housing Starts, etc. But maybe they will! You never know with these fickle dudes!

So... To recap... The TICs data last Friday indicated a loss of confidence in the U.S., the Budget Deficit for the U.S. was $1.42 Trillion for the fiscal year ending Sept 30th. The currencies, for the most part, are rallying this morning VS the dollar, and the data cupboard will fail to give the markets direction this week. Some Chuck speak on the soapbox on a Marvelous Monday too!

Currencies today 10/19/09: A$ .9225, kiwi .7475, C$ .9670, euro 1.4935, sterling 1.63, Swiss .9865, rand 7.35, krone 5.5910, SEK 6.9580, forint 178.50, zloty 2.8130, koruna 17.29, RUB 29.33, yen 90.80, sing 1.3915, HKD 7.75, INR 46.30, China 6.8268, pesos 13.07, BRL 1.7130, dollar index 75.50, Oil $78.13, 10-year 3.45%, Silver $17.52, and Gold... $1,055.40

That's it for today... Hey! I forgot to mention last week that I had the featured guest essay on the Daily Reckoning (www.dailyreckoning.com) last Wednesday! If you aren't a Daily Reckoning reader, you missed it... But, because of the technology available to us, you can click here to read it: http://dailyreckoning.com/bric-nations-the-fundamentals/  Congrats to my little buddy Alex and his 8th grade Flyers teammates for completing a weekend sweep! Two football games, two smashing victories! Well, it's that time of the year again... On Friday of this week, I'll be going through a ton of tests, scans, needles and other stuff to make sure I'm still on top of the cancer that took over my body 2 years ago. So, I'll be out on Friday... But you still have me for the next 3 days! We closed out our latest BRIC MarketSafe CD last week, and opened the door to another one! This issue has been so popular that we decided to extend the funding period! OK... Time to hit send... I hope your Monday is Marvelous indeed!

Chuck Butler
EverBank World Markets

Posted 10-19-2009 9:53 AM by Chuck Butler