Holiday markets bring stability...
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In This Issue

* Holiday markets bring stability...

* Actual US deficit just 61% higher than 'official' figure...

* Commodity currencies continue to be the best protection...

* Chuck's 'Day Before Christmas'...

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

Holiday markets bring stability...

Good day...It was another light day trading day in the markets yesterday, and from the looks of the parking garage and highways outside our office, we will probably see even less trading today. While the markets haven't been busy, our operations and middle office folks have been working overtime with yearend requests for transfers or distributions. Chuck called last night and let us know he wants everyone out of here at a reasonable time this afternoon, so we will work together to make sure that happens!

The markets had plenty of data to trade on yesterday morning, but most of the desks were running on limited staff and as yesterday, the data really didn't motivate any of the junior guys to take action. Core Durable Goods Orders were down more than expected, but this was offset by the ex-Transportation number which was higher. Personal income and spending came in almost identical to expectations, with spending rising .4% and income rising .3%. The PCE Deflator showed prices here in the US were 1% higher than a year ago.

The weekly jobs data was identical to last week, with 420k more people filing for unemployment benefits and 4,064,000 continuing claims. Readers know that these 'official' numbers are substantially lower than the actual number of people who aren't working this holiday season. It is going to be a tough Christmas for well over 4 million Americans.

The New Home Sales data came in slightly lower than the rosy projections. 290k New Homes were sold in November, which equated to a 5.5% increase from a month ago. Economists had predicted 300k new home sales which would have been a 6% MOM increase. While these actual figures were slightly lower than expectations, they were still an increase from the previous month, and indicate housing has at least 'bottomed out' here in the US.

With trading in the markets very thin, I have been reading more news stories on the success of the 'lame duck' congress. They followed up the extension of the tax cuts with the repeal of 'Don't Ask, Don't Tell', the ratification of the START Nuclear arms treaty, and several other items. There seemed to be something for everyone in the legislation passed over the past few days, no matter which side of the aisle members were on. But guess who will get to pay for all of these little 'presents'? The US taxpayer!

I was reading through yesterday's '5 Minute Forecast' from our friends at Agora, and came across the following:

As if to prove the above thesis, the U.S. Treasury just came clean on how much of a deficit it ran during fiscal 2010. It's only 61% higher than the "official" figure.

The annual Financial Report of the United States Government came into being under Paul O'Neill, who you might remember from I.O.U.S.A. He was the Treasury secretary thrown overboard by Dick Cheney for having the temerity to believe deficits do matter.

The report applies generally accepted accounting principles to Uncle Sam's books -- you know, the ones you have to apply in the private sector on pain of severe penalties.

That means Treasury took into account things like.

. Hefty increases in costs accrued for veterans' compensation

. Government and military employee benefits

. Anticipated losses at Fannie Mae and Freddie Mac.

Factor those in and the deficit came in at $2.08 trillion. just a wee bit over the figure splashed all over the media a few weeks ago, $1.29 trillion.

But it's even more fugly than that.

"Broader GAAP-based federal deficits, including the Social Security and Medicare unfunded liabilities, have been in the $4-5 trillion range in 2008 and 2009," says's John Williams. "And 2010's deficit again likely was near $5.3 trillion, remaining both uncontainable and unsustainable."

By this yardstick, you could eliminate all government spending except Social Security and Medicare and there'd still be a deficit.

The "5" is required reading for everyone on the desk, as it is always full of great information! You can subscribe to this free newsletter which hits my inbox every afternoon at .

These deficits which we continue to pile up will eventually drive the US$ lower. We have been warning people about these growing deficits, and the future impact on the value of the US currency for years now, and the best way to protect yourself is to have a diversified portfolio including metals and currencies.

As I indicated in the opening paragraphs, the dollar was largely unchanged yesterday, but is beginning to drift lower vs. the commodity currencies this morning. The New Zealand dollar and South African rand are the two best performers vs. the US$ over the past 24 hours, with each increasing approximately 1%. The Brazilian real and Aussie dollar also saw some appreciation, with the Aussie holding above $1.00 for the second consecutive day.

Worries about the sustainability of China's economy have waned, as data continues to show strong growth. And India is also looking like they will continue their higher growth rates. Both of these countries are big buyers of commodities, so the good news has been very good news for the commodity based currencies. I have read a few news reports which have started to predict a reversal of fortune for the commodity based currencies, but I still think they will be the place to invest in 2011.

Gold continues to form a new base just below $1,400. It seems as if it will trade in this area up until the new year, when it could bust out on a new upward path. Concern over Europe's debt crisis and inflation concerns over QEII have made investors add to their gold allocations. I don't see either of these factors changing in 2011, so I continue to accumulate precious metals in my own portfolio.

With that I will move on to the currency roundup and a special treat from Chuck. I am out next week, so I want to wish everyone a very Merry Christmas, and a Wonderful and Prosperous New Year!!

Currencies today 12/24/10: American Style: A$ 1.004, kiwi .7483, C$ .9931, euro 1.3126, sterling 1.5435, Swiss $1.0393, European Style: rand 6.74, krone 5.9699, SEK 6.8511, forint 212.65, zloty 3.0233, koruna 19.305, RUB 30.47, yen 82.91, sing 1.2991, HKD 7.7806, INR 45.1225, China 6.6264, pesos 12.356, BRL 1.6909, dollar index 80.41, Oil $91.51, 10-year 3.39%, Silver $29.2725, and Gold. $1,383.73

That's it for today. I have been working with Chuck for over 20 years now, and while he can put on a 'tough' exterior at times, he has always been a softy when it comes to the Christmas season! Every year he has left a 'Christmas poem' on our desks Christmas eve. A few years ago he decided to start sharing it with his Pfennig readers, and this year I think his poem is outstanding.

So here is the 2010 edition of 'Chuck's Day before Christmas':

T'was a day in December

a December to remember

For it had been a very strange year

A year full of changes

and political rearranges

Let's hope someone remembers why we're here!

We're here to be here

for someone you love

for someone in need

for someone to hug

for someone to talk to

in the middle of the night

or go play catch with

or go fly a kite

to make the world a better place to live

I've seen dark days, and they were always brightened by my loving family, and friends I was no longer frightened...

So... as I pull on my cap to protect my balding head I looked to the future and knew I had nothing to dread For I have taken the steps to insure my family's wealth and tried to tell everyone they can do it them self!

Now, it's the night before Christmas

and all through the cold building on Eager Road not a creature was stirring not even a toad!

But, in the morning's dim light a person can be found banging on a keyboard, and making strange sounds

It's the Pfennig writer, I said to myself he's here, oh my! I'll try to be stealth

He's writing about deficits, and all of their horror Now he's yelling at the walls, will there be a tomorrow?

He knows that soon his colleagues will arrive and he'll have to be ready to give them quotes and prices...

the people that he works with each and every day are so professional in each and every way They are fun to be around, and he's always sad when he has to be away from them and he gets to feeling bad...

There are too many to name them all,

so he'll stick to a few

that have stood by his side

and laughed with him too!

There's the big boss Frank Trotter,

and partner Chris Gaffney,

Long time friend Jen McLean,

Ty Keough and Kathy

Mike Meyer always helps out

and so does Kristin. let's give them a shout!

Tim, Aaron, and Lori, are new and in tow and he can't forget about our little Christine... Peplow!

His old latte buddy Michelle

and the two Marys,

with Ann and Nicki, Suzy Q

and Cheryl...

and April Showers recuperating

at home with husband Harold!

(ever try to make a rhyme with names?)

So... It's been a strange year, we all know it's true but we have all the hope and wishes for 2011 let's hope they come true!

the Pfennig writer is finished banging on the keyboard he's singing along with his I-pod...

it's a good thing no one else is here, he thinks, and then turns to give me a wink and then putting on his coat and cap he went to his car, it was time for a nap

but I heard him exclaim as he drove out of sight...

Merry Christmas to all...

and to all a good night!

Chris Gaffney, CFA

Vice President

EverBank World Markets



Posted 12-24-2010 10:37 AM by Chuck Butler