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EverBank World Markets
A Pfennig For Your Thoughts
Wednesday, August 11, 2010

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In This Issue….

* Dollar flies high on FOMC...
* FOMC puts $2 Trillion floor down...
* Bailing out the states...
* Aussie Consumer Confidence soars!

And Now... Today's Pfennig!

QE Light...

Good day... And a Wonderful Wednesday to you! Well... The FOMC set off some fireworks yesterday, and so did the Cardinals & Reds, more on the latter later! But first, we have to go to the tape and see what the Fed Heads said to trigger the fireworks in the markets... And let me tell you, it's back to square one for a few things this morning...

OK... The dollar is flying high this morning, as the knee jerk reaction to the FOMC announcement yesterday, didn't last long. Let me explain... The FOMC statement was full of things that could be taken two different ways, but the first way it was taken was that the Cartel would exit their reversal plans and implement a form of Quantitative Easing (QE)... I call it QE Light... Less filling...

Now... I told you what would happen if the Cartel decided to implement QE, and that's exactly what happened, with the dollar getting sold, and currencies along with Gold rallied... Shoot Rudy, the stock market here in the U.S., recovered almost all of its 100 point loss for the day, in a matter of minutes following the FOMC announcement...

But, then, the markets got a real good look at the statement, and in the end, the cartel had not announced a new round of QE (not yet!) instead, they had basically placed a floor on their balance sheet of $2 Trillion, and decided to keep its bond holdings level to support an economic recovery. They also announced that maturing bonds would be reinvested into longer dated Treasuries, to keep rates low for the mortgage sector.

The Cartel also assessed that in the near term, the recovery proved to be "more modest" than they had anticipated. Shoot, if they had only been Pfennig Readers 6 months ago when they made those statements about a growing economy... They would not have opened mouth and inserted foot!

So... As I turn on the currency screens today, I see the euro holding on to the 1.30 handle by the skin of its teeth, and Gold down $7... Quite a bit different looking than yesterday afternoon, right after the FOMC statement! So... Just put that down as a knee-jerk reaction, and the trading now, as a return to the "flight to safety" dookie we've seen off and for two years now.

The FOMC averted a HUGE dollar sell-off yesterday by wording what they were doing differently than the markets had seen before... But in the end, isn't it the same stuff? I mean, if they aren't going to reverse their previous bond holding plans, then they are continuing on with the current environment to hold toxic waste bonds, and keep interest rates a historic lows... Thus further inflating what will end up being the biggest bubble of all time... Treasuries...

Speaking of Treasuries... The 10-year is now at a 2.71% yield... Talk about measly yields! But, that's not as bad as a 1-year Treasury Bill... Get this... A 1-year T-Bill currently yields .23%... Now... If you buy that from a broker, and they charge you a commission, you're now negative... And... If your money manager buys it for you, you're still negative, because of their management fees! Why in the world would any one buy a T-Bill?

OK... I've got to go on to other things here... I can feel my blood pressure rising! Of course, sitting here, sweating, waiting for the A/C to turn on, isn't exactly helping me keep calm either! UGH!

Well... On Monday, the price of Oil was $2 higher than it is today... And, while I like to see cheaper gas, I have to wonder just what's going on... Of course the Cartel telling everyone that our economy is stuck in the mud, isn't going to make any one think that U.S. consumers will be out buying gas!

Speaking of U.S. Consumers and our economy, I'm going to share with you an observation I made last week, that falls right into the "economics" that I use to help me make the calls I make...

I've been camping about the same time of the year with my family for many years. (except the 2007,2008) Shoot, I used to go with my beautiful bride's family before we were married! And years ago, the campgrounds would be full, especially on the weekends, and there would be lots of boats in the lake. But since 2000, the campers dwindled, along with the boats in the lake... There was one year, that besides my family, there was only one other family in the campground!

But this year, it was very reminiscent of years before 2000... I thought to myself, Self... I see this as a sign of the economic times... Instead of going to Rome this summer, these people stayed close to home, and camped for their vacation... A sign of poor economic times if you ask me!

And what about the labor crisis here? What's the Cartel doing about that? Oh, they are failing miserably once again, at this, that, and anything else they do!

I see where the President signed a $26 Billion Bill to give emergency aid to states... Didn't I tell you this was coming? And I doubt that $26 Billion is going to be near the amount that will be needed by the states... But stop right there and think about what he just did... He took $26 Billion of your tax dollars and spent them without your authorization... Once again!

I did see though that the bill calls for a reduction of the food stamp program by $11.9 Billion... That's interesting isn't it? I mean, I'm all for ending a majority of the spending in these programs, but didn't I just tell you how the number of people on food stamps has grown yesterday? Strange happening as far as I'm concerned...

And did you see where the Pentagon is going to cut thousands of jobs? That's right, thousands... But again, I have to question the timing... Aren't we fighting two wars right now? But then, if there are thousands of people there that aren't needed, why have they waited until now to cut them?

OK... Let's talk about something other than the U.S. economy, I'm growing tired of it!

Let's talk about the Canadian economy... Today, we'll see the color of Canada's Trade Deficit for June... I'm expecting it to narrow, as I assume that the energy sector will have done enough to narrow the deficit here, which is small in nature, and manageable by all means. Canada's economic growth is solid, folks... No worries here...

And then we have Australia... One of the TV's we had on here yesterday had a spokesperson from Australia on to talk about the Aussie job creation sensation... He announced that there would be free 1-year work visas given to people 18-30 to come to Australia and work... Amazing!

That job creation shows up in Consumer Confidence for sure... And look what we have here! Aussie Consumer Confidence printed last night and showed a nice strong increase for the second consecutive month... +5.4% this month... Following +11.9% last month...

Then there was this... And this story that was in the Washington Post, just made me sick! But since I enjoyed it so much (NOT!) I thought I would give you a snippet of it and the link to the whole story, as long as you promise to put away the sharp objects first!


It seems that there's a new way to escape house payments on a home that's underwater and many never recover... It's called, "buy and bail"... Where a home owner, acquires a new home before their credit rating is ruined by walking away from the old house that's underwater, or worth less than the mortgage...

So... In essence, the practice of "lie on your loan application" is continuing, even though Fannie and Freddie thought they had beefed up their standards to prevent this from happening...

I shake my head in disgust...

To recap... The FOMC did a QE sort of dance yesterday that caused a knee jerk reaction, pushing the currencies and Gold higher, but only for a short time before the markets realized it wasn't really any new QE, and the FOMC also downgraded the economy, thus throwing the markets into a "flight to safety" which has the dollar flying this morning.

Currencies today 8/11/10: American Style: A$ .9040, kiwi .7195, C$ .9635, euro 1.3010, sterling 1.5715, Swiss .9485,... European Style: rand 7.2825, krone 6.1550, SEK 7.30, forint 217, zloty 3.0850, koruna 19.10, RUB 30.28, yen 85, sing 1.3610, HKD 7.7655, INR 46.69, China 6.7750, pesos 12.72, BRL 1.7430, dollar index 81.66, Oil $79.38, 10-year 2.71%, Silver $18.16, and Gold... $1,197.50

That's it for today... Well... Did you see the "baseball brawl" in Cincinnati last night between the Cardinals and the Reds? I see nothing wrong with teams ironing out their differences... But do it like men... Not like one Reds player, who took to kicking his opponents in the back and face with his metal cleats... I don't know who taught him to fight... Cardinals and Reds play another game today, I'm sure a lot of people will be looking for more extra curricular activities from these two teams... Well, that's all I had to talk about today... I sure hope your Wednesday is Wonderful!

Chuck Butler
EverBank World Markets

Posted 08-11-2010 9:41 AM by Chuck Butler