I Love It When A Plan Comes Together!
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In This Issue.

* Currencies & metals rally!

* New Speculation adds drama to FOMC.

* Aussie dollar hits parity!

* New Zealand and their deficit.

And, Now, Today's Pfennig For Your Thoughts!

I Love It When A Plan Comes Together!

Good day... And a Terrific Tuesday to you! One day down, this week, 3 more to go! And yesterday was quite the long day here in the saddle. UGH! But, hey, what doesn't kill you. makes you stronger! That's my story, and I'm sticking to it!

Let's see. Yesterday, as I neared the Big Finish, I told you that: "For today. I'm expecting a bit of a recovery for the currencies and precious metals, due to the empty data cupboard here in the U.S. and the fact that China did NOT react to their dynamic duo reports of inflation and economic growth with a knee jerk rate hike."

I love it when a plan comes together! Because, proving once again that even a blind squirrel can find an acorn. I hit that one bang on! The Currencies and precious metals did rally, and not just your typical ½-cent type rally. this was a full speed ahead, take no prisoners, don't get in the way of that run-away bus, type of a rally! The Euro, was up nearly 2-cents as I left for home, with the Aussie dollar (A$) adding 1-cent, and getting within spittin' distance of parity to the dollar once more.

Apparently, the Asian session carried on the rally, not with the same enthusiasm of the North American session, but still they carried on my wayward son. No wait! Geez Louise, Chuck, are you going to be inserting songs throughout the whole Pfennig today? I don't know. You never know when my fat fingers just start typing song lyrics! OK. I'm back now. I stepped away for a minute, but I'm back now!

Yes. the A$ is .9999 as I turn on the currency screens this morning. OH! It just hit $1.00! I wanted to say that the A$ had run at .9950 a couple of times in the past week, and a close above that would be the springboard to parity. But, the currency couldn't wait for me, now could it! And you should see what Gold & Silver are doing, once again. Gold is back above $1,400, and Silver is within spittin' distance of $30 again! What the heck is going on with these two precious metals? They seem to have 2-3 days of strong performance, only to be offset with 2-days of weak performance. This has gone on for a couple of weeks now.

All, I can say is that as a holder of Gold & Silver, I love the strong performance days! What? You didn't think I backed up what I talk about with regards to diversification with my own investment portfolio? Think again! Diversification is the only way we're going to get through what the U.S. Gov't, lawmakers, Treasury and Cartel/Bernank are doing to our currency! So. why would I be any different? Oh! I can hear my beautiful bride, that is if she's still reading, saying. Oh, you're different alright! HA!

Well. apparently, when I said that this week's FOMC meeting would have none of the drama as the previous couple of meetings, I was merely hoping, for. now there is speculation in the markets that the FOMC / Bernank, might signal an increase in the amount of Quantitative Easing to the original $600 Billion announced 6 weeks ago. This speculation was brought on by Big Ben himself, as he admitted a week ago, that the total could be more than $600 Billion. You might recall that I questioned last week when the Big Ben made that statement as to why the dollar wasn't getting pounded. Well. apparently, currency traders are a little slow in their reaction, eh? HA!

So. Commodities took the conn on the rally's reins yesterday and led the risk assets higher VS the dollar. And that was fueled by the lack of a rate hike by the Chinese, and. the speculation about more QE for the U.S. economy. And that's the way they should react! Period!

This morning, the euro is well bid, after the results of the latest German Economic Current Situation Index, as reported by the think tank ZEW. the results were less than expected, but. were still an increase over the previous month, and allowed the index to hit a new cycle high! As I keep saying over and over again, that this dance is gonna be a drag. No! Darn it, Chuck, stick to the economic stuff! Sorry. As I keep saying over and over again that German Industry continues to be healthy. I don't know this to be a fact, but it seems to me that the Germans love the euro in the 1.25-1.35 range. in this range, the strong euro doesn't hurt their exports, and allows the Central Bank to manage inflation. A euro at 1.40, is tolerated, but not in the sweet spot that 1.25-1.35 brings. A couple of years ago, when the euro was 1.60, there were orchestrators of the euro, smiling like Cheshire Cats, but German manufacturers were sweating bullets.

Well. I see that the "tax cut extension" is going to go through. I'm reminded of what I told the guy from Dow Jones last week, regarding the Tax cut extension. I said that it might give a quick hit blip to the dollar, but in the long run it was not good for the dollar, as all it did was continue to add to our deficit. Well. I see the ratings agency, Moody's agrees with me. Moody's said yesterday, that the agreement to extend tax cuts "raises the chance of a negative outlook for the U.S.'s Aaa Credit Rating, unless offsetting measures are enacted."

This is exactly what I've been saying for 8 years now! First of all. everyone likes lower taxes. I know I certainly do! But, the tax cuts that were put in place by the Bush Administration, and the lawmakers at that time, were never offset with spending cuts. Instead. the tax cuts were put in during a war! I remember writing in the Pfennig back then, this was totally unheard of, that it was the first time in history that tax cuts were put in place during a war! And it was wrong to do so! But, people looked at me like I was that guy, walking down the street with the sandwich board saying the end of the world was near.

But here we are, as in olden days, Happy golden days of yore. Still, deficit spending, and keeping tax rates lower. Amazing, simply amazing. A couple of months ago, the Bush Tax cuts were evil. and now they are being embraced by the Gov't. I shake my head in disgust. can you see me shaking it? And the rolling eyes of disgust go along with the head shaking! (just so you get the whole picture!) And no! I'm not going to give back my tax savings from the cut! I'll save it, and invest it in non-dollar investments to protect myself from what this is all going to do to the dollar down the road.

Speaking of "down the road". I've said this too, over and over again, and I call it "kicking the can down the road". That applies to the Gov't continuing to deficit spend, and not addressing the deficit at all, and leaving it to the next administration and Congress. I saw a report yesterday that used that phrase, asking the question. "how long can the can be kicked down the road?" I didn't get a chance to read the report, but If I were the one writing it. I would say that maybe 7 years. but it could be 2 years.

Ok. it's not just the U.S. that keeps deficit spending. In New Zealand, which used to be one of my fave countries / currencies. The Gov't gave their half yearly economic and fiscal update last night. the Gov't raised its deficit and net debt forecasts, and lowered their growth forecasts. At least they mentioned that the Gov't would work on austerity measures in their 2011 Budget. When New Zealand had the highest interest rate in the industrialized world back in 2008, they could sweep their deficit under a rug and hide it, and investors / traders didn't care to look under the hood. I kept telling people that would listen to me, that the Aussie dollar would outperform kiwi, because. when the interest rates would begin to fall, kiwi would no longer be able to hide their deficits. And for a while, that seemed dumb, because kiwi outperformed the A$... But not any longer!

Once New Zealand had to cut rates like everyone else in 2008, the deficit was exposed. And now, look at the A$ outperform kiwi. Yeah, Baby. as I do my best Austin Powers! And. Printing economic data like New Zealand did last night isn't going to do kiwi any favors. New Zealand October Retail Sales fell -1.6% from September. the annualized Retail Sales for New Zealand aren't "bad". but if November follows October's fall in Retail Sales, the trend will be in, and it won't be your friend!

Today. I expect the currency rally to remain well bid, but, not swing for the fences like yesterday. Every time Gold gets above $1,400, it gets smacked down, so it's about time the shiny metal remained above $1,400 and add to that, and leave $1,400 in its rear view mirror.

Then there was this. This Thursday, the CFTC (Commodities, Futures Trading Commission) will meet, and announce their long-awaited plans to clamp down on speculation. Yes, speculation, that evil thing that everyone blames the problems of 2008 on. Hmmm. I could get into a long conversation about that. but instead, I'll just say that unless CFTC member, Bart Chilton, doesn't say something about the "mysterious trading in Silver and Gold" then, the CFTC is wasting your time and my time.

However, if. by chance, the CFTC names, names. and points fingers, and demands correction, oh my! If all the CFTC meetings were to stop Silver and Gold Shorting, oh what a meeting it would be. I'd stand outside with my mouth open wide. ah, ah, ah, ah ah. HA!

To recap. The currencies and precious metals had a strong rally during the North American session yesterday, and the rally was well bid overnight. The lack of a Chinese rate hike, and speculation that the FOMC will announce a greater than $600 Billion will be needed in QE, have the commodities leading the way for the risk assets.

Currencies today: American Style: A$ $1.0010, kiwi .7565, C$ .9935, euro 1.3460, sterling 1.5860, Swiss $1.04, . European Style: rand 6.8175, krone 5.8770, SEK 6.7865, forint 205.90, zloty 2.9650, koruna 18.6860, RUB 30.70, yen 83, sing 1.2995, HKD 7.7740, INR 44.94, China 6.6525, pesos 12.35, BRL 1.6935, dollar index 78.98, Oil $88.78, 10-year 3.29%, Silver $29.82, and Gold.. $1,406

That's it for today. I have the Christmas music going on the I-pod this morning, I like this better than the radio, because the radio has a play list of about 25 songs that they play over and over and over again! The bitter cold has a grip on us here in St. Louis, and the weather people are calling for some snow tonight. Hmmm. Not that I ever really had an axe to grind against snow, but now that the last thing I need is to slip on snow and fall, I don't care for it. I have a car that's made for snow, but when I get where I'm going, I have to get out, and walk. Ok. enough of the complaining! It's Christmas time! And with that. I'll get to work, and. Hope that you make today a Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 12-14-2010 9:46 AM by Chuck Butler