Big Ben Talks Rate Hikes...
Daily Pfennig

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In This Issue..

* Currencies trade in a very tight range...                                            
* Aussie job creation soars!                                       
* Oil pushes loonies higher...                                                
* The Mogambo Guru returns!                                                                                                           

And Now... Today's Pfennig!

Big Ben Talks Rate Hikes... (dreams about them more accurately!)                                              

Good day... And a Tub Thumpin' Thursday to you! Well... It's a BIG night at the Butler house... Not really at our house, but more the Fabulous Fox! My little buddy Alex, and the jazz band he plays guitar for, will be performing tonight at the Fabulous Fox, which for those of you not familiar with the Fox, it's a beautiful refurbished theater here in St. Louis... Alex also has a big guitar solo, so this should be good!

OK... Well, the "experts" that thought the Trade Deficit was going to narrow in December got their lunch handed to them yesterday, when not only did the Trade Deficit NOT narrow, but widened from $35 Billion to $40 Billion! Now that stinks! And... I'll tell you right now, it will deduct from the 5.7% GDP figure that was printed a couple of weeks ago. Yes, this increase in the Trade Deficit will probably reduce the GDP figure to at least 5%...

Now... In the old days (before the financial meltdown) a report like this would have deep sixed the dollar in a New York Minute... And... You could see some traders attempt to get the ball rolling for the euro after the report printed... But then along came a German in a black hat putting an end to that mini-rally for the euro... A German official threw cold water all over the euphoria that swept through the markets on Tuesday, when it was rumored that Germany was weighing a bail out for Greece... The German official, basically said that Germany would not help Greece, and it was Greece's problem to deal with...

Well, that sure pulled the plug on the mini-rally! The non-dollar currencies all took a nose dive lower, and brought Gold down with them. But, then about an hour later, the non-dollar currencies and Gold were inching their way higher once again...

So... Here's what I see folks... I see currencies and commodities champing at the bit to move higher VS the dollar, but there are too many forces going against this right now because of the stories coming out of the Eurozone... You know, the stories that I'm talking about, the debt problems of the so-called PIIGS... (Portugal, Italy, Ireland, Greece, Spain)

And... While I don't agree with throwing Portugal, and Spain in that mix, that's what the market participants are doing right now... I tried, but I was unsuccessful in my attempt to come up with an acronym for California, Illinois, Michigan, New York... I did some research the other day, and while I don't want to spill the beans for the article I wrote for our monthly customer newsletter, I can assure you that the U.S. states that are in trouble, just like the Eurozone states, account for more of the GDP of the country, than the Eurozone states account for in the Eurozone... Not sure I said all that correctly, but I think you get the drift... The U.S. states problems are a bigger part of the U.S. than the Eurozone states' problems...

But, who's getting whacked? And the whacking of the euro doesn't bother me as much as the whacking of Gold... For, what asset would you most want when the two largest contributors to World GDP are in such bad shape? For me, it would be Gold... For some it would be Silver... But for all it wouldn't be the dollar!

So... Big Ben Bernanke was talking about his plan to remove / withdraw stimulus... He even mentioned that he may raise the discount rate at some time... Notice he didn't say when... And he didn't say that he would definitely raise the discount rate! He's a knucklehead folks... I still can't believe he got re-confirmed for a second term!

The 10-year $25 Billion auction didn't exactly go off without a hitch yesterday, as buyers of the 10-year bonds demanded higher yields. The yield on the 10-year rose to 3.70% from 3.63% yesterday morning. Like the guy in the movie Airplane, it was a bad day for Ben Bernanke to talk about raising rates, with a $25 Billion auction to get off!

So... It wasn't exactly a "bad" auction, but it didn't inspire a ton of confidence either!

Again... Let me repeat for you in case you forgot, or, missed class that day... But... Here's the skinny on the thought that the Fed is going to raise rates soon... You have to remember that the Fed bought tons of adjustable mortgage backed bonds from dealers with the stated intention to sell them back to the markets once the "coast was clear"... Well, if the Fed raises interest rates, those bonds that they hold begin to lose value, and the Fed will be holding them at great losses should they decide to sell them back to the "street"... So, keep that little ditty in mind, when you hear the Fed Heads talking higher rates... They are just like me as a teenager with my friends, talking about how great it would be to own a GTO... Talking about it made us feel like we really owned one ( I drove a 1963 Ford Falcon!) even though we knew we would never be behind the wheel of one!

And all the while that the Fed Heads keep rates low... Inflation builds... My friend, the Mogambo Guru, is back to writing on the Daily Reckoning ( and not a moment too soon! Yesterday I was reading the Mogambo's article titled: Ignoring Inflation Won't Make it Go Away... And the Mogambo goes on to talk about increasing prices everywhere... I pulled these two snippets to share with you on inflation...

Here... He's talking about the Wall Street Journal, which he says claims inflation doesn't exist... "A subscription to the paper now costs $385 per year, whereas as early as the middle of 2004 it cost $338 for a TWO-year subscription. So The Wall Street Journal, as oblivious and clueless as ever, has seen its own prices more than double in 5 years, which comes out to a compounding of 14.87% increase per year, but yet they can't see inflation in prices?

When it comes to actual proof of a coming inflation that is going to destroy the world, instead of just me loudly running my mouth about it, where the only good news is that The Mogambo (me!) can rise from the ashes to assume full dictatorial powers and a huge salary-and-benefit package to re-establish the gold standard and real prosperity to America, one need only look at the last two pages of The Economist magazine, where we find, among the 40 biggest economies in the world, that all of them have inflation in consumer prices! Well, all of them except Singapore (where inflation is zero), Taiwan (negative 0.2%) and Japan, where prices are supposedly falling at 1.9% a year."

All hail the Mogambo, for he has returned!

I read a story this morning about the upcoming European Union Summit, and how the groundwork will be put down for a Greek bail out... You know, while I like the fact that this would calm the markets down a bit... I'm not for bail outs... And the thing that scares me is that once the EU opens Pandora's Box of bail outs, the line will begin at the door for handouts to whatever Eurozone state feels the need... And I don't like that scenario!

In the South Pacific overnight... The A$ received a boost when it was announced that Aussie employers added more than three times as many jobs in January as the "experts" forecast! The Aussies added/ created 52,700 jobs last month, the biggest monthly increase since December 2006! The unemployment rate fell to 5.3%... This print also marks 5 consecutive months of jobs gains in Australia!

I just don't see how the Reserve Bank of Australia (RBA) can ignore all these strong data prints too much longer! The A$ shot up 1-cent on the news to .8880! So... I'm going out on a big fat limb here and saying that the RBA will hike rates on March 2nd... (their next scheduled meeting)

Moving to the North Sea area... Sweden's Riksbank left their rates unchanged, as expected, but did sound a bit more hawkish in their after rate announcement statement. Reading the statement leaves me thinking that the Riksbank has their collective eyes on a late summer rate hike... That's like throwing the krona a bread crumb... But, the krona did react favorably to the bread crumb, so, maybe the Riksbank can get to throwing it loaves of bread!

Have you been following the rise of Oil's price this week? We started the week with a $71 handle, and today we have a $75 handle... After briefly falling below 94-cents earlier this week, the Canadian dollar/ loonie is back above that figure on this rise in Oil's price... The Russian ruble too is stronger on the rise in Oil... Norway's krone is just a bit stronger VS the dollar this morning, as the oil price rise doesn't seem to be helping the krone, just this minute...

Not that the krone needs a crutch like rising oil prices to reflect what a strong currency it is! But... Rising oil prices would go a long way toward boosting the krone...

The Data Cupboard is quite empty today, except it is a Tub Thumpin' Thursday, which means the Weekly Initial Jobless Claims will print this morning, and is expected to remain well above the 450,000 figure...

I saw a headline go across the screen titled: Unemployment in U.S. May Have Peaked As Economists Raise Growth Forecasts... Well, you knew that seeing that I would have to go check it out to see what kind of dolt mentality it was going to print... Yes, the economists, surveyed by Bloomberg, believe that Unemployment has peaked, and that as the economy strengthens, jobs will be added through 2011... Hmmm... I just don't see it folks... Just don't see it... Unemployment is near 20% (don't listen to those nilly willies that say it is just 9.7%!) and while they could be correct that unemployment has peaked... I just don't see this recovery they are talking about that would be strong enough to reverse the job losses and added over 150,000 jobs a month, which is what a stable economy in the U.S. is needed...

Then there was this... The Obama administration has apparently come up with a creative way to deal with the increasingly bleak news with regard to the economic position of the United States in the world. 

It proposes to eliminate the office in the Bureau of Labor Statistics that collects and publishes the comparative data on employment, unemployment, manufacturing productivity, and labor costs, among other things.  You can find it at below link among the various programs that it has marked for termination.

And I thought, and you too thought, that Bush's hiding of M3 was bad enough?

To recap... The currencies traded in a tight range yesterday and overnight, with bumps up and slides back down. The EU Summit is supposed to be working on a bail out for Greece, which I don't want to see. Aussie job growth was 3 times what the experts forecast, and a return of the Mogambo Guru!

Currencies today 2/11/10: American Style: A$ .8885, kiwi .6990, C$ .9455, euro 1.3740, sterling 1.5625, Swiss .9365, European Style: rand 7.6750, krone 5.8950, SEK 7.2380, forint 196.80, zloty 2.9310, koruna 18.9230, RUB 30.14, yen 89.60, sing 1.4115, HKD 7.77, INR 46.50, China 6.8338, pesos 13.05, BRL 1.8440, dollar index 79.87, Oil $75.10, 10-year 3.70%, Silver $15.42, and Gold... $1,080.80

That's it for today... This Saturday, here in St. Louis, we hold the country's 2nd largest Mardi Gras Parade and Party... It's always a good time, but since I can't walk far, or stand for too long, I've had to quit going... The young guys here on the trading desk go though, and I get to hear about it... Next Tuesday is Fat Tuesday, or Shrove Tuesday for those of us with Irish blood... Then lent begins... Which means... Spring is just around the corner! I just saw a headline flash on the screen that said the EU had worked out a deal to help Greece... Hmmm.... Maybe the markets can calm down now just a bit, eh? It is so darn cold here! I gotta go where it's warm! Boat Drinks, the boys in the band ordered boat drinks, the visitors scored on the home rink... Yes, just singing a Jimmy Buffet song, get me thinking about the warm sun! Ok... Big night for us in the Butler House, as my little buddy Alex will be playing his guitar at the Fabulous Fox tonight! I know I told you that twice, but some people, only read the last paragraph... I hope your Thursday is Tub Thumpin'!

Chuck Butler
EverBank World Markets

Posted 02-11-2010 9:51 AM by Chuck Butler
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