More QE On The Way?
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In This Issue.

* Currencies trade tight range.

* Gold & Silver back off.

* Russian Central Bank hikes rates.

* Oil backs off of $100.

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

More QE On The Way?

Good day. And a Happy Friday to one and all! Another snowy morning here, not much to talk about there, just a dusting, but an unhappy reminder that it IS STILL WINTER! UGH! I haven't been here to wish you a Happy Friday in 3 weeks, and after today, I won't be around on a Friday, until we get to April! So. Happy Friday, today, and for the next month! Let's see what we can do to make it a Fantastico Friday, eh?

Well, front and center here this morning, is the news overnight that the Russian Central Bank raised its refinancing rate 25 Basis Points (1/4%) , their first increase since December 2008. Not that the Russian Central Bank or their rate hike news is something that would move the markets. I talk about it because, yesterday I told you that the ruble had reached a 10-month high VS the dollar. Well, this rate hike, which was needed due to the increase in Oil prices, has the ruble at 15-month highs this morning.

Long time readers, that know me well, will be scratching their heads, wondering just what has gotten into me, talking about Russian rubles. Awwwwww, come on. it's a currency isn't it? It's part of our BRIC CD isn't it? OK. Let's move along now, these are not the droids you're looking for.

Speaking of Oil prices. The one that I track in the currency roundup, is the West Texas Intermediate spot price. WTI. it's the world's most liquid forum for crude oil trading, as well as the world's largest volume futures contract trading a physical commodity. So, when I quote the price of Oil, I'm using this, and not Brent Crude, or any of the other Oils that get reported. Just so ya' know! Well. the price of Oil backed off the $100 figure yesterday, but don't think for a minute that the "run-up" in the Oil price is over. There's still plenty of geopolitical problems for this "run-up" to be over. Shoot Rudy, I wish it were over, for I certainly have no love of $4 gas. But, unfortunately, I just don't see how we'll get out of that in our near future.

Yesterday, we saw the currencies trade in a very tight range, which was fine with me, for the volatility lately has been giving me a rash! HA! The slippage I saw yesterday morning as I headed to the Big Finish, didn't have any follow through, so the currencies like the euro, remained strong, throughout the day. The overnight markets didn't move the currencies much either, so it looks like we're trading in yesterday's clothes this morning.

Gold & Silver took a turn on the road that led them to Sellersville. that was pretty strange watching the euro hover around 1.38, and Gold selling off $10. But it was what it was. And this morning, with the currencies still in a tight range, Gold is off another $2.

Yesterday, I was having an discussion (via email) with a reader, who is a real chartist / technical guy. He sends me stuff that I use in my fundamental research. For instance, Yesterday, we were discussing the Australian dollar (A$). I told him that I thought the A$ had more room to move higher, but. it needed to get moving, otherwise, the long held positions in institutions and hedge funds will throw in the towel, and move on to some other asset, for the A$ had been around 1.01 for a few weeks now. I do believe that those long position holders gave the A$ a "get out of jail free card" because of the N.Z. earthquake, but now the A$ needs to get moving! The technical guy, then said, that's exactly what the charts show. He said that if the A$ breaks out to the upside, the move could be big, but there is a horizontal resistance level.

Nice to see that technical and fundamental analysis can work together, but in most cases, I prefer to think that assets go into trends for fundamental reasons, and don't come out of those trends until that fundamental reason is corrected or well on the way to being corrected.

Yesterday, we saw 1.38 in the euro in the early morning trading. The increased rhetoric from European Central Bank (ECB) members is really doing the trick for the euro's rise. I think that the comments, that I told you about on Tuesday, from ECB member, Mersch, got the ball rolling, and now ECB President, Trichet, has to temper the markets' reaction to the thoughts that the ECB will hike rates at the next meeting. They may hike them, but I doubt that they will, because, Trichet is not going to be backed into a corner by the markets' expectations.

Last week at our editors' meeting, there was a comment from an editor that the euro was a bad idea from the beginning. I said, "hold on there! You have to go back to the 90's. the Berlin Wall had collapsed, West Germany was reunifying with East Germany, and the combination would have made Germany so powerful VS the rest of Europe. Having seen that play out a couple of times in the past, the rest of Europe had to do something to rein in Germany, and having them join a European Union, was a very clever idea, and. they made the German Chancellor, Helmut Kohl, think it was his idea!... and in less than 10 years, the euro became the 2nd most liquid currency in the world, and was nipping at the dollar's heels" I don't call that a "bad idea".

Now, one could argue that Germany, Austria, Netherlands, France, and Luxembourg, would have been a good strong Union, and the southern countries of Italy, Portugal, Spain, Greece, along with Ireland to the north, should have been left off the roster. but. there's strength in numbers. It's with much angst now that the these periphery countries have caused such a debt debacle. But, they'll figure it out. Remember, that at the base of all this, is the economic engine of Germany.

Well. did you see the New Home Sales data for January, yesterday? New Home Sales fell -12.6%, wiping out the previous months' so-called 15.7% increase. The previous day, we saw Existing Home Sales increase 2.7%... but, let me tell you that the bulk of those sales were "short sales", and foreclosures, they were NOT first time home buyers. and. the price fell out of bed on those sales! These "distressed" sales caused home prices to fall to levels not seen in 9 years! So. 9 years of home price gains have been wiped off the slate, folks. That's a very sad state of affairs, I'm afraid to say.

Today, we'll see the first revision of 4th QTR GDP. I'm suspecting it to be revised downward, but then, who knows what the "boys" in the back room are "cooking up", eh? And then the U. of Michigan Confidence report will print. I'm sure this will be just as "mamby-pamby" as all the other Confidence reports!

Ok. enough on U.S. data! The Irish election is beginning about now. As with most of these parliamentary things, there won't be a clear winner, and a new coalition will have to be formed. In all my years of covering foreign countries, this has been the case almost every time. with the mess they have in Ireland right now, I don't see anyone "volunteering" to lead! HA!

There were more rumors about an emergency meeting of the Reserve Bank of New Zealand (RBNZ) circulating last night, but when no meeting materialized, kiwi rallied. This also helped the A$ to move past $1.01. Like I said above, the A$ is armed and ready to make a move higher, and it had better do so soon!

Did you see where Saudi Arabia increased their oil output to help smooth out the disruption caused by the violence in Libya? The Saudis raised their oil output by 8% or 9 million barrels per day. I'm sure that decision to help smooth out the disruption, came from some meetings, and lots of sawdust was left on the floor.

There's a story on the Bloomberg this morning that caught my eye. the title reads: "Imperialist dollar ceded to gold, euro havens".. OK, admit it, if you saw that story title you would be all over that like a cheap suit too! Ok. So, now, I'm intrigued, and drill down on the title to read the story. Here's a snippet. "Middle Eastern investors appear to prefer the euro as a more stable and secure currency these days, while the idea of buying "imperialist" U.S. dollars may not appeal to your average North African dictator". WOW! The story then goes on to say that , "Global crisis usually causes funds to flow into U.S. dollars, gold prices normally pull back when the dollar rises. This time, funds may prefer to flow into the euro rather than into U.S. dollars, and this may be helping Gold. The writer then goes on to forecast the price of Gold rising to $1,485 within a few weeks.

I've been quite long in the writing this week at times, so I thought I would keep the Friday edition of the Pfennig to short-n-sweet. But first.

Then there was this. Rick Rule, is a long time friend of ours. In fact, it was in his house that the idea of EverBank, the online Bank, was hatched. Rick is a commodities guru, and I always enjoy catching up with him. Well, yesterday, Rick was interviewed by King World, and he said something that really made sense to me, especially since I've called for QE3 and QE4. Rick was asked about the exploding Oil prices. here's a snippet from the interview. and here's Rick Rule! "The bottom line is that the increase in energy prices will have inflationary impacts. The U.S. government wants to report the CPI excluding food and fuel, sadly people eat and drive and it does impact people's cost of living.

Further, the political response to the economic shock engendered by higher energy prices will doubtless be more quantitative easing. The markets response to central bank counterfeiting will likely be much higher gold prices."

Thanks Rick! Chuck again. That's how I see it too. I scoffed and wiggled in my seat last week at the editors' conference when not one but at least two editors got up and talked about the Fed ending Quantitative Easing.

To recap. The currencies traded in a tight range yesterday, with only Aussie, kiwi and Canadian dollars / loonies able to add to their values VS the dollar. The price of Oil has backed off the $100 figure. Today, we'll see the first revision to U.S. 4th QTR GDP. And the pressure is on ECB President to temper the markets' expectations of a rate hike coming very soon, which has been the reason for the rise in the euro this week.

Currencies today 2/25/11. American Style: A$ $1.0140, kiwi .7510, C$ $1.02, euro 1.3785, sterling 1.61, Swiss $1.0770, . European Style: rand 6.9725, krone 5.6270, SEK 6.40, forint 197.80, zloty 2.8840, koruna 17.75, RUB 28.92, yen 81.85, sing 1.2745, HKD 7.7935, INR 45.32, China 6.5760, pesos 12.12, BRL 1.6615, dollar index 77.15, Oil $97.70, 10-year 3.46%, Silver $32.68, and Gold. $1,402.80.

I've decided to not type out all those zeros in the national debt each day, and instead will just give you the link to the debt clock. I've done this for years now, but thought doing it each day, might drive home the point a bit more.

Debt clock..

That's it for today. Good luck to my son Alex, who travels to Chicago today with the high school jazz band to perform . My beautiful bride is going along, in her new car, so. I'll be "Home Alone" this weekend. but get to spend my day tomorrow getting my running board replaced! I sure know how to have fun, eh? HA! I got a note from the Big Boss, Frank Trotter, last night that an old colleague at Mark Twain Bank, Bob Butler, had passed away. Bob was a great person, and was one of the people that helped me get hired at Mark Twain Bank. We were no relation, that we knew of. I just looked up and saw on the TV on a national cable station, they were talking about the pet parade that will take place in St. Louis, tomorrow, as the start of the Mardi Gras celebration here. That's pretty amazing that they are getting this spotlight on national news! It will be a cold day for them tomorrow. And with that, I'll hit send and be on my way. I hope you have a Fantastico Friday!

Chuck Butler


EverBank World Markets



Posted 02-25-2011 9:00 AM by Chuck Butler