A 67% Income Tax Increase!
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In This Issue.

* Aussie floods continue to devastate.

* German GDP soars in 4th QTR.

* Portugal bond auction goes off ok.

* Renminbi moves strongly VS the dollar.

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

A 67% Income Tax Increase!

Good day... And a Wonderful Wednesday to you! Well. the flood waters in Australia have become Tsunami like, according to reports, and are really devastating. Brisbane, Australia's 3rd largest city is being taken over by brown water filled with everything that has come in contact with the flooding waters. Living in the St. Louis area, and being very close to a river that floods all the time, I've seen this scenario several times in my life, and it's not pretty. My thoughts go out to the flooded victims in Australia.

The good news here is that the water is expected to crest today.. The euro seems to be cresting today too. The beleaguered and beaten down euro, has received some wind in its sails this morning on two fronts. First, Portugal's auction of 10-year bonds, seems to have gone off just fine, with the yield falling! That's a great sign folks. The other source of wind in the euro's sails this morning is coming from a report fresh from the German data cupboard. German GDP jumped 3.6% in the 4th QTR, which is the fastest economic expansion for Germany in two decades!

Of course now that I've typed that all up, and the euro was 1.3020 when I began researching the stories, the single unit has fallen back below 1.30. Just can't stand the prosperity! This morning, one of our markets TV's was on Bloomberg TV, and on the TV, a guy (couldn't catch his name) was talking about the euro, and saying that he thought the low for the euro would be 1.25, and that he was telling his customers to buy euros at 1.25, and their target was 1.50! WOW! 1.50? Really? That's pretty far out there, given all the problems with the periphery countries of the Eurozone. But, that's what he said. So, he picked out a nice limb to crawl out on . good for him! That's what we need more people with conviction in the currency markets!

So. the bias to buy dollars remains in the markets, but for how long? Another week? Another month? 6 months? It's difficult to pick, because, every time it looks like the currencies have smooth sailing ahead, along comes another European periphery country with debt problems. (or at least that's what the media would have us believe, and the markets take the bait, hook, line and sinker!) But. I truly believe it will happen, just like all the other short-term rallies the dollar has generated in the past 9 years. Of course, historically, the longest weak dollar trend was from 1985, (after the Plaza Accord) to 1995. 10 years. So. if we remain in the "trends" we have the chance to reach 10 years. However, I have to say that for years I preached about the "Currency Trends". and I've got to re-think that. Yes, all that was good information for us. But what happens if this time, the weak dollar trend remains intact for years beyond the historic trends?

And this next story is one of the reasons I believe that we could be in store for years, decades of dollar weakness, without experiencing a strong dollar multi-year trend. Are you ready for this?

1. In another baby step toward gaining a wider distribution for the renminbi. The Bank of China Ltd., one of the country's four major state-owned banks, has opened trading in the Chinese currency to customers in the U.S., representing a symbolic endorsement by Beijing of foreign trading in the renminbi.

Now. doing this, opening an account there to hold renminbi, right now, is next to impossible. the thing that's important is the fact that China is taking yet another baby step with their currency. And eventually, that will hurt the dollar's chance of every mounting another multi-year strong trend.

And. in my never ending effort to call out the precious metals price manipulators. I bring you this story that appeared on the GATA website. The GATA (Gold Antitrust Action) Committee has done the tough leg work over the years to expose the manipulators. GATA currently has a lawsuit that's being heard, regarding Gold price manipulation, and here's a story that appeared on their website.

"GATA today scored a small but perhaps auspicious victory over the Federal Reserve in our lawsuit seeking access to the Fed's secret gold files. The judge presiding over GATA's federal freedom-of-information lawsuit in U.S. District Court for the District of Columbia, Ellen Segal Huvelle, granted GATA's motion to order the Fed to produce in complete form for the judge's private review 20 gold-related documents the Fed has sought to keep secret. The judge ordered the Fed to deliver the documents by Friday."

This could very well be the straw to break the price manipulators' backs, folks. And if you take the governors off Gold and Silver. watch out! And watch out dollar!

You know. I've also tried to point out the mess of debt that the U.S. states are dealing with, and have wondered aloud for over a year now, just why this debt problem in the states is not as important to the dollar, as the debt problems of the Eurozone states are to the euro.

Well. this morning, I see that one of the U.S. states that I've talked about for over a year now, Illinois, has passed a 67% income-tax increase in an attempt to deal with their $13 Billion deficit. That's 67% folks. Now, that Illinois has done this, watch the domino affect come into play with the other states announcing their income tax increases. And if you don't think this will play hell with consumers' ability to spend, then this letter isn't for you. And when consumers can't spend because their income is being taken away by taxes, eventually the economy falters. again.

Now. you may recall me telling you over and over again (I laugh, because how could you not recall me telling you this), that taxes in the country will be soaring to deal with the deficits in the future. and our kids and grandkids will have to deal with it. Well, this income tax increase in Illinois is just the beginning of that. And the media is all about Portugal's debt? Or Ireland's? or Greece's? Give me a break! Before I go on to another thought. I want people right here, right now, to remember who it was that told them that this was all going to happen here in the U.S. because of the deficit spending.

Recall that when the FOMC's QE2 was announced in November, that there were some harsh words between voting members of the FOMC voicing opposing views from Big Ben Bernanke. But. apparently, all these Fed Heads have received the memo now, for. voting members of the FOMC this year softened their tone in the debate over the Fed's controversial bond-buying program. Analysts said the program appears to have strong support but the real test may come later this year. And that's what I've said over and over again. When we get to the "end date" in June, and the FOMC is still discussing the need for additional QE, the you know what is going to hit the fan! And the dollar? OMG! The selling of the dollar will be the size of Texas!

The Swiss franc is seeing some selling pressure. Pressure it hasn't seen for some time now. But since the beginning of the year when the franc was $1.07 it has fallen over 4-cents. Once again, I was a little ahead of the markets movements when I told a reporter in December that I just didn't see how the franc could get much stronger and that it had probably reached its top. that was when the franc was $1.05. The franc is going to continue to see some weakness, as long as the Confidence measures around the world continue to get stronger.

From mid-week on, last week until last night. the Chinese renminbi lost ground to the dollar, in small moves, but still it was strange to see, given the renminbi's moves for the last 6 years. But that all changed last night, with a record size move stronger VS the dollar for the renminbi. The thing that cracks me up about this move, and its timing is that China's Premier, Hu, will be visiting the U.S. next week. So, go figure! No wonder the renminbi is back to gaining VS the dollar. The Chinese moved it lower VS the dollar for a few days, so that it could make news with a record size move higher VS the dollar! The boys and girls in Washington might not see this for what it is, but I do!

And. one more thing on Gold. Seems that with Gold falling below $1,400, the demand for physical Gold is more than what the suppliers can mint! Here's another story from the GATA website.

"Demand for gold bullion has been unrelenting since gold's price dropped below $1,400 an ounce. We cannot meet all the enquiries that we are getting," said Nigel Moffatt, Treasurer of the Perth Mint, one of the world's largest gold refiners and distributors. Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars."

All that demand, very little supply, and the price of Gold remains below $1,400? I find that to be simply amazing! Don't you? I mean, this falls under the great line my dad taught me many years ago. "There's no such thing as a "shortage", the item is simply in need of a price adjustment".

Speaking of my dad. his birthday was last week. he would have been 84 this year. I miss our long talks at the kitchen table. But I digress, sorry. My sister sent me a picture of my day, my younger brother, and me sitting on the back porch, with our transistor radio, probably listening to a Cardinals game. I was about 10. Boy we were poor, but I didn't know it then! I love that picture, not because I'm in it. It's because my dad, when he was still healthy, and looking strong, and younger brother, both of whom are no longer with us, are in it.

Then there was this. Think China's inflation is their problem alone? Guess again. When garment buyers from New York show up next month at China's annual trade shows to bargain over next autumn's fashions, many will face sticker shock.

Though many Chinese are earning higher salaries, the government has become worried that rising inflation could lead to social unrest.

"They're going to go home with 35 percent less product than for the same dollars as last year," particularly for fur coats and cotton sportswear, said Bennett Model, chief executive of Cassin, a Manhattan-based line of designer clothing. "The consumer will definitely see the price rise."

Inflation has arrived in China. And after Tuesday's release of crucial financial statistics by China's central bank, few economists expect Beijing officials to be able to tame rising prices any time soon.

Chuck again. Right now, the so-called "experts" believe that China's inflation won't be that big of a deal here in the U.S. I say balderdash!

To recap. The Portugal auction went well this morning, with the yield actually falling in the secondary market, which is a strong result for a country that was projected to be on its death bed. German GDP in the 4th QTR grew at the fastest pace in two decades. And euro rallied on these two news items, but has given back its gains already. The floods in Australia are in the country's 3rd largest city of Brisbane. And The judge hearing the lawsuit by GATA regarding price manipulation, asked for the Gold records that the Fed was trying desperately to keep from the public. This could end up being HUGE folks.

Currencies today 1/12/11. American Style: A$ .9890, kiwi .7570, C$ $1.0135, euro 1.2985, sterling 1.5610, Swiss $1.0290, . European Style: rand 6.8375, krone 5.9415, SEK 6.8075, forint 212.30, zloty 2.9570, koruna 18.7715, RUB 30.35, yen 83.30, sing 1.2915, HKD 7.7745, INR 45.13, China 6.6125, pesos 12.09, BRL 1.6805, dollar index 80.75, Oil $91.10, 10-year 3.38%, Silver $29.63, and Gold. $1,382.70

That's it for today. Geez Louise, yesterday was January 11. which meant it was 1/11/11 (all ones!). While I forgot to talk about that, I won't forget that 1/12 is my son Andrew's birthday! Happy Birthday Andrew! Yes, 29 years ago, he was born, and it snowed about 9 inches that day. Andrew is a high school teacher. He also coaches swimming and water polo. I'm quite proud of him. Ok. my song that I'm singing along with today is Amy by the Pure Prairie League. My darling daughter, Dawn, loved for me to play my guitar and sing that to her when she was young. And when Delaney Grace was born, Dawn changed "Amy" To Delaney, and sang it to her all the time. Delaney, what are you going to do? And now. I will get moving on this very bitter cold day here in St. Louis, Mo. I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 01-12-2011 10:23 AM by Chuck Butler