Singing From Different Song Sheets.
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In This Issue.

* The price of Oil surges higher!

* The Swiss franc also surges higher!

* Russian ruble hits 10 month high.

* Is Big Ben sly as a fox?

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

Singing From Different Song Sheets.

Good day. And a Tub Thumpin' Thursday to you! Hey! I told you it was an icy day yesterday morning, did you see the video or pictures of the 22-car / truck pile up on our main artery in and out of downtown St. Louis? WOW! People that got out of their cars, put their lives in jeopardy, as car after car came piling in. Amazing. I'm glad no one here, or my family was involved.

Speaking of icy. Whoa! Did I get a nasty email yesterday, simply because I said that in "my opinion" I didn't see the stuff going on in the Middle-East working out for us here in the U.S.. Apparently, the reader thought that I was taking issue with democracy. Nope! And if democracy is what happens in that region, that's fine with me. Unfortunately, I don't see that way, and neither do the people running the price of Oil up to $100. I said long ago, that I wasn't going to address these nasty emails any longer, but this one was a mis-understanding, I think.

OK. Well, yesterday I told you about the Turnaround Tuesday, and that turnaround continued all day yesterday, with the currencies and metals taking liberties with the dollar all day, and night. Yesterday morning, it was interesting to see the euro climb above 1.37, and this morning, it's interesting to see it climb near 1.38. And one thing that you'll see when you get to the currency round-up, and that is, the U.S. Treasury 10-year yield has rallied for about a week now. it began with the Fed's back-door buying, and now, the switch to Treasuries from stocks is going on. Is this all a part of the plan by the CABAL. I mean Big Ben Bernanke told us that QE2 was all about propping up the stock market. but was he sly as a fox here? Did he know in his heart of hearts, that a stronger stock market would get people feeling all cocky again, but that soon, they would realize that it was all a house of cards, and just about the time yields are rising, people would bail on stocks, and buy Treasuries, thus, keeping interest rates low, which is what he wanted in the first place? WOW! Come on. do you really think that he outsmarted us? Or is this just a co-in-qui-dink? You be the judge.

Speaking of the Fed / CABAL. Which one do you believe? OK. In the FOMC's 1/26 meeting minutes, the minutes stated that, "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."

OK. we get it! But then yesterday, Fed Head Hoenig said that he, "opposes low rates stance because it yields speculation." And Fed Head Plosser said that the FOMC, "may need to change policy even with unemployment high."

Apparently, the Fed Heads aren't singing from the same song sheet. And let me tell you something that I've learned in my many years of watching Central Banks. When Central Bank members don't sing from the same song sheet, the markets get nervous about the direction, and when there's a question about direction, the currency will get hammered. And, that's certainly what we're seeing since Messrs. Hoenig and Plosser spoke yesterday.

Mr. Hoenig also went on to talk about the "easy Monetary Policy" and how it will create another crisis down the road. I have to say that I like this Hoenig dude. He "gets it"! But, he's the Lone Ranger here. On the other side of the table is St. Louis, Fed Head, Bullard. he's the guy that began the talk about the need for QE2.

OK. Let's talk about something else, I've got some more on Big Ben Bernanke in the "Then There Was This" section of the letter today.

So. How about those precious metals? (was doing my best Jimmy Johnson there). Which reminds me that I did an interview with a Wall Street Journal reporter yesterday, and she quoted me in the Journal! OK, it's not like this the first time I've been quoted in the Journal, but it's been awhile, so it was fun to see it! I talked about how Gold & Silver are the uncertainty hedges. And we sure do live in uncertain times (no matter what Consumer Confidence says!). and with each day, more uncertainty surrounds us.

I also talked to her about my thought that I shared with you all a couple of weeks ago, regarding the hoarding of Gold that's going on in China, and how I believe that China is going to eventually float their currency, and when they do they will back it with Gold, making it very attractive. sort of like makeup, hiding the bad skin. But I don't think she was a "believer" in that thought. Oh well, I tried!

Reader Scott, sent me a note this morning about the sad state of Banks here in the U.S. (not EverBank!) . Here's a snippet from "The number of FDIC-backed banks judged at risk of failure is 11.5% -- which is to say 1 bank in 9 is in danger of collapse. That is the highest level since 1987, when 12.5% of banks -- 1 in 8 -- were on the problem list. It is also the third highest level since records started being kept in 1980, according to data provided by FDIC stats whiz Ross Waldorp."

That's not a good thing folks. but then besides stocks here, there aren't too many "good things" to hang our hats on. The one good thing is that, we're alive, and kicking. And since we're Americans, we'll find a way to deal with this, the right way. it will mostly likely be down the road, but, we'll deal with it.

The Russian ruble has been on quite a run in recent weeks that coincides with the rise of the price of Oil. The ruble reached a 10-month high overnight. I recall when we came out with the BRIC MarketSafe CD (Brazil, Russia, India, China) a lot of people sent me notes or told me that they wouldn't buy the CD because of Russia being a part of the CD. I told them then, and I still believe it now. Russia is an oil play. If you believed then, that the price of Oil was too low and would be going higher in the next 4 years, then you can forget about all the corruption, and "stuff" in Russia. We don't offer the ruble other than in that CD, that we stopped offering a year ago. So, I don't talk about the ruble too much, but thought an update for the BRIC CD owners every now and then would be OK.

Recall yesterday, I told you that there were rumors overnight that the Reserve Bank of New Zealand (RBNZ) was going to cut rates to help out the kiwis after the earthquake, but those rumors did not turn out to be true. Well, Jen mentioned to me yesterday that Barclays was calling for a rate cut from the RBNZ. So, I guess those rumors did have legs. now, we'll have to wait-n-see if the RBNZ is willing. Like I said yesterday, the bulk of the New Zealand economy wasn't directly affected, so the RBNZ needs to tread carefully here.

And the Mexican peso. recall that I told you previously, that the peso had been rallying, and much of the rally was due to the better / brighter prospects (made up or not) for the U.S. economy. I also told you that buying pesos without a "risk premium" which is not available right now, reminded me of the youngsters that "drunk dial". Well. the peso was trading about 11.96 when I talked to you about it. and look here, this morning the peso is 12.17, which means it lost about 2% in the past couple of weeks. I warned you to be careful here.

Well. as I get closer to the Big Finish this morning, I notice that there's been some slippage from the levels I saw when I first turned on the currency screens this morning. The run-up in the currencies since Tuesday midday, has been impressive, so some profit taking could be seen this morning or later today.

The Swiss franc is really on a run VS the dollar. Just when I figured the franc was ready to run out of steam, it picks up the pace and moves higher. I've said this before, but let me repeat for the newcomers to class. The old guard believes the Swiss franc to be a "safe haven" in times of geopolitical problems. it goes back to the days when the franc was backed by Gold. Most people, even still today, still believe that the franc is still backed by Gold, and therefore it is perceived to be a "safe haven". and what did you learn in school? You are, what you are perceived to be.

So. the franc kicks tail during the Middle-East problems. and it won't be a welcomed thing for Swiss exporters, but, there's not much that can be done about it. The Swiss National Bank (SNB) learned that lesson the hard way last year when they were like the Big Bad Wolf trying to blow down the brick house. They tried intervention, and they tried intervention, wasting billions of dollars worth of francs, and they couldn't get the franc weaker. But much like many things in life. I'm sure the SNB has "forgotten the pain". and they will probably make another run at the strong franc. and much like the Big Bad Wolf. they will fail.

Then there was this. from the Asian Times (thanks to a reader), penned by Doug Noland. I took this snippet, for the article, it was a real humdinger of an article, and if you promise to put away the sharp objects first, I'll give you the link to read the article in full. but, first, here's the snippet.

"Our deficits are completely out of control, and the Federal Reserve has added to its list of historic blunders by accommodating Washington spending profligacy. Quantitative easing distorted the pricing of government debt and the markets perceptions of risk, thus promoting unprecedented government borrowing and spending. Without QE1 and QE2, higher Treasury borrowing cost would have some time ago commenced the necessary "austerity" measures. Instead, the Fed has aggressively manipulated borrowings costs and the Treasury has accumulated debt recklessly.

It hasn't mattered much in the market that the Chinese and other central banks have backed away from accumulating Treasuries. Few take notice that the dominant international buying now takes place through the financial hubs in the UK and the Caribbean (hedge funds and other leveraged players?). Perhaps, as the FT suggested, it might matter in June when the Fed wraps up its (latest phase of) monetary experiment.

There are reasons for the marketplace to become increasingly nervous with the confluence of massive supply, the lack of a reliable central bank (Fed, China, etc) backstop bid, potentially "weak-handed" leveraged players becoming the marginal source of market liquidity, and a potential derivatives tinderbox. With inflationary pressures mounting in a world dominated by derivatives and sophisticated hedging programs, one has the makings for one volatile bearish concoction. And with the unprecedented trajectory of federal debt accumulation, we're now at the point that market yields don't have to surprise much on the upside for some really serious problems to unfold.

I think the sophisticated players have believed there were still a couple of years before the US debt problem turned unstable. I think they may have to rethink. I have in the past pointed out that in early November 2009 Greece could borrow for two years at about 2% - and markets could pretend the Greek debt situation was manageable. The fact that markets were content to postpone the disciplining process ensured that when it did finally arrive it was serious.

Here's the link, but don't forget your promise!

To recap. The currencies and metals added to their gains from Turnaround Tuesday yesterday and overnight. While some slippage is happening at this point of the morning, it indicates profit taking as London gets ready to close their books on the day. The euro tried to climb to 1.38 in early morning trading, and the Swiss franc pushes higher and higher. Chuck talks about the Fed Heads speeches yesterday, and compares them to the FOMC meeting minutes.

I'm going to add something to the daily currency roundup. I'm going to post the National Debt each day. or. maybe I'll just report it weekly.

Currencies today 2/24/11. American Style: A$ $1.0060, kiwi .7475, C$ $1.0160, euro 1.3765, sterling 1.6155, Swiss $1.08, . European Style: rand 7.0725, krone 5.6170, SEK 6.3960, forint 198.70, zloty 2.9050, koruna 17.8140, RUB 29.03, yen 81.80, sing 1.28, HKD 7.7960, INR 45.47, China 6.5810, pesos 12.18, BRL 1.6690, dollar index 77.26, Oil $100.39, 10-year 3.44%, national debt $14,179,466,000,000, Silver $33.36, and Gold. $1,414.00

That's it for today. really, really, really, bad news from Cardinals training camp yesterday. our pitching Ace, Adam Wainwright, developed a bad elbow, and will be lost to the team this year. Geez Louise, I don't know how a team recovers from that. In 2007, after our then Ace, Chris Carpenter, went down on opening day, that year was completely lost. I'm still excited about going to spring training, but disappointed a bit by this news. two weeks from today, I ship out for spring training. the countdown is ON! My beloved Missouri Tigers won big last night against Baylor, so that's a good thing! Congrats to my nephew, Charlie, who tied the knot last weekend in St. Augustine, Florida. Charlie is the younger son of my sister, Brenda, that we lost to cancer over 20 years ago. So, I haven't seen much of Charlie since then. I saw some pictures from the wedding, and he looked very happy. OK. enough of all that! I hope you go out and have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 02-24-2011 10:40 AM by Chuck Butler