Wen To Support Euro With "Real Actions"
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In This Issue.

* Bias to sell dollars overnight.

* Geithner talks and makes some sense.

* Will U.S. bond vigilantes wake up soon?

* It's Chris Gaffney's Birthday!

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

Wen To Support Euro With "Real Actions"

Good day... And a Happy Friday to one and all! And hopefully when we get to the end of this day, which happens to be Chris Gaffney's birthday, it will have been a Fantastico Friday! I've been watching the run of the stock market with a lot of interest lately. No, I'm not turning into a stock jockey. Instead, I'm watching it with amazement at how well it is performing, but something has to boil over soon, I mean 81% of stocks are above their average price. Makes you wonder, eh?

The currencies overnight have that look and smell of another dollar sell off, but, as we've seen most of this week, what happens in Asia and Europe overnight, stays in Asia and Europe. The U.S. traders have their own thoughts as to the direction of the dollar, and those thoughts are the exact opposite of those in Asia and Europe. Each morning, this week, I come in, get my glass of water, turn on the currency screens, and see a nice rally has taken place overnight, with the dollar looking like it just came back from a trip to the woodshed. But by the time I hit the send button on the Pfennig, I notice that there are cracks in the rally's foundation.

So. let's hope that today, since it's Chris Gaffney's birthday, will be different! But all in all, these are tight ranges that the currencies have traded in this week, with nothing out of the ordinary going on. Last week, we were talking about the euro hanging on to 1.36, and this week we're talking about the euro hanging on to 1.37.

Yesterday, when it was the day before Chris Gaffney's birthday, we saw some data that the White House didn't want to see, and immediately, blamed the snow for the awful results of the Weekly Initial Jobless Claims. By my way of thinking that excuse card of the snow was probably better played last week, when the Weekly Jobs Claims fell by 37,000 (filers couldn't get to the unemployment office to file the claim), So this week, they Job Claims rose by 51,000. Lucy. you've got some 'xplainin' to do!

On Chris Gaffney's birthday, the other big event will be the printing of the first estimate of 4th QTR GDP for the U.S. The 3rd QTR ended up at 2.6%, and the forecast for the 4th QTR is a healthy 3.5%... Now, I would be jumping up and kicking my heels together, if the GDP of the U.S. wasn't so influenced by Gov't spending. But, the mass media will not skip a beat worrying about that. They'll be out this morning, after the data prints, with some strong statements about the economic recovery, and all that. Look, the U.S. economy is stronger than it was before, but the strains on it are holding it back, and without Gov't spending, GDP would look like 2.0-2.5%... That's my take on it. You may disagree, and that's the beauty of being American!

U.S. Treasury Sec. Tim Geithner gave a pretty interesting speech in Davos, Switzerland overnight. I know that I've been quite hard on the Beaver (Geithner) in the past, but this time I think he got most of what he was saying right. Here's an example. Geithner said that, "political will to deal with the U.S. fiscal issues was growing and acknowledged that the U.S. could not "grow its way out of fiscal challenge." WOW! Talk about a reversal! Is this the "new Administration"? Not so cocky, not so brash, and willing to admit that they may have made mistakes? I doubt it. I'm sure someone slipped something into Geithner's drink that made him talk this way!

Oh. and nothing, absolutely nothing on how the U.S. is going to: 1. Finance the $1.5 Trillion Budget Deficit this year, and 2. What is being done to reduce that deficit.

In Japan, where they saw their Credit Rating downgraded the night before. Unemployment printed at 4.9%, which represents falling unemployment in Japan. CPI (The Big KAHUNA for Japan) actually fell a bit. How that can happen in a country where there's been no sign of inflation for 2 decades, is beyond me, but it fell, along with Household spending. All-in-all, a pretty weak economy, which is no surprise, I mean, what else is there to say about the Japanese economy. it hit the slippery slope in 1992, and remains there.

Yesterday, when I told you about how S&P had downgraded Japan's Credit Rating for their indebtedness, I forgot to say that I wish the leaders of the U.S. would take into consideration the old phrase that, "it's better to be wise from the misfortunes of others than from your own".

Bloomberg TV showed a graph yesterday of debt by country, and of course Japan is the leader at 200% of GDP, but they had the U.S. at 59% of GDP. I don't agree with that number. By my calculations and those of others, we see U.S. debt at 95% of GDP.

Bond vigilantes. you know what those guys are right? I've talked about this before, but since it's Chris Gaffney's birthday, I'll talk about it again. A Bond Vigilante is a bond market investor who protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields. Well, the Bond Vigilantes in the U.S. have yet to really show their cards. They came out briefly, pushing US. Treasury yields in the 10-year from 2.63% to 3.45%, but that's just a taste of the damage they can do to bond prices if they really want to show their strength.

I'm a true believer that the goings on in the Eurozone, where the bond vigilantes woke up and destroyed Eurozone periphery country bond prices, is going to end up waking the U.S. bond vigilantes up. And then we'll be faced with the problem I discussed the other day, regarding increased debt servicing. (the interest on the bonds) and how with low yields the U.S. is struggling to meet the debt servicing.

China's Premier, Wen, said that China will do more to support the euro through "real actions". I talked about this the other day, when we were building the crescendo that culminated in Chris Gaffney's birthday, that Chinese support for the euro, along with German support, has really turned the fortunes / direction of the euro around. A couple of weeks ago, people were talking about the end of the world as we know it, for the euro. Now, those same people are back on board. Oh. and Geithner also said that he believed the euro would survive their debt crisis. Hmmm.

Remember about a month or so ago, I talked about how an analyst had issued a report on India and the rupee, and how I agreed, because I liked the direction of India and the rupee? OK, then you'll also remember that I ended that discussion of the rupee with a comment, that basically I had now put the kyboshes on any chance the rupee had to gain. (my kiss of death). Well.. I turn on the screens today to see a story glaring at me stating that the rupee is "heading for worst start since 1996". Sorry rupee. But. don't give up the ship, just yet. all the things I said about India back a month or so ago, remain in place. So, maybe if you liked rupees at the level they were a month ago, you'll love them now!

Brother! Did Gold & Silver get whacked again yesterday! WOW! Pretty crazy trading if you ask me! The only thing I see going on folks, are the people that bought Gold & Silver for the wrong reasons. They bought it because the neighbor that they don't like because he's just strange, said he had bought Gold & Silver! They didn't buy it as a hedge for their investment portfolio, and a store of wealth. the stock market is more sexy right now, according to these investors, and they are selling their Gold & Silver to buy stocks. Chasing price. Oh, they'll be back. and feeling like they ran through a gauntlet, and will fall to their knees, with tears in their eyes, when they get to hold a Gold coin again.

OK. maybe I went a little far there. but, that's what I was thinking, and my fat fingers love to type what I'm thinking, although my fat fingers do have a filter, thank goodness. I can't imagine the badly my wrists would look, from all the slapping of them, if I didn't have a filter! HAHAHAHAHAHA!

The best performing G-10 currency this year, the Swedish krona, finally saw a speed bump this morning, when December Retail Sales showed a fall of .8% from November.. So, some selling has occurred in krona this morning. In fact, it's really strange to see krona weak, while the Norwegian krone gets stronger. these two normally move in the same direction.

Then there was this. Ok. first of all, I had seen something yesterday that really sent me off the edge, and I wrote a long piece about it, but after sleeping on it, I've decided to go with something else, and leave the story about the instruction book on suicide bombing that was found in the Arizona desert, to be heard by my friends. I can't get fired for telling them! Instead I'll go with this.

French President Nicolas Sarkozy told participants at the World Economic Forum that allowing the euro to fail is "unthinkable" and that Germany and France will never let that happen. "To those who would bet against the euro, watch out for your money because we are fully determined to defend the euro," he said. "You have to understand, the euro is Europe. And Europe is 60 years of peace. We will never allow the euro to be destroyed."

Chuck again. way to go Nicolas!

To recap. the big deal today is that it's Chris Gaffney's birthday. And then the little things are the first estimate of 4th QTR GDP, and other smaller data prints. The currencies have performed nicely overnight, with the bias to sell dollars reaching around the world, and stopping in most ports. There were more quotes from Davos, where propeller heads have gathered to exchange ideas about the world economies, and Chinese Premier, Wen, said China would support the euro with "real actions".

Currencies today, on Chris Gaffney's birthday. American style: A$ .9980, kiwi .7770, C$ $1.0055, euro 1.3730, sterling 1.5955, Swiss $1.0605, . European Style: rand 7.0950, krone 5.78, SEK 6.45, forint 198.15, zloty 2.8550, koruna 17.6715, RUB 29.66, yen 82.15, sing 1.2785, HKD 7.7775, INR 45.75, China 6.5860, pesos 12.04, BRL 1.6740, dollar index 77.70, Oil $85.85, 10-year 3.41%, Silver $26.71, and Gold. $1,313.50

That's it for today. Hey! Did I mention that it's Chris Gaffney's birthday today? So Happy Birthday Chris! And on Sunday, it will be our little Christine's birthday! It's a birthday weekend on the trading desk! We're having breakfast sandwiches and Latte's on the desk today for the birthday kids. Hey! Did you see that Captain America is getting a new name? He's now The 1st Avenger, or something like that. UGH! We're finally getting to the end of January. Thank goodness, for I'm so tired of winter! Not that Feb is any better, except that it's shorter, and pitchers and catchers report to spring training! I started a petition to make the start of spring training a national holiday, but it didn't get any traction. So, let's get January out of here, and get February started! (I know that happens next week, I'm just trying to speed the calendar up a bit!) . OK. I'm coughing up a lung (not really), and need to get some more water, so I'll just end this and get it out the door. I hope your Friday turns out to be Fantastico, and your Weekend, Wonderful! Bye!

Chuck Butler


EverBank World Markets



Posted 01-28-2011 9:54 AM by Chuck Butler
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