Flies In The Ointment.
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In This Issue.

* Jobs see Zero growth!

* SNB hammers the franc lower!

* German court to rule on bailouts.

* Chinese Manufacturing remains healthy.

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

Flies In The Ointment.

Good day. And a Tom Terrific Tuesday to you! What a great weekend! We had a couple little rain showers on Saturday (other parts of the country saw downpours) and that was it! The weather was so chamber of commerce like, that if it continued like that, it would cost much more to live here! HA! (Ty reminded me that I hadn't said that in a while last week!)

OK. I know you all want to get to the "meat" of the letter, (I'm sure some of you would reenact the two old ladies saying, "Where's the beef"? ) but first I was all prepared to bring this alert to you on Friday morning, and plum forgot. another senior moment I guess, as it was all queued up and I left it right there, and forgot about it. So. with no further delay in getting this alert to you.

There's a fly in the ointment folks. the ointment being the bailouts of Greece, Ireland, & Portugal . A German court is going to rule on the constitutionality or legality of Germany's participation in the bailouts, and this ruling is expected tomorrow, Sept. 7th!

This like here in the U.S. where we just circumvent the Constitution, and it takes a ruling by the Supreme Court to overrule something that should never have started. Well. apparently, Germany's participation in the bailouts is considered to be against the law of the land. Germany's Chancellor, Angela Merkel, has tried to sneak the sun past the rooster here, and now, we'll see if the German Court will look the other way or not.

If they declare the actions illegal, you can only imagine the problems for Greece, Ireland and Portugal. And if they declare the actions illegal you can only imagine the euro getting taken to the woodshed for sure! I talked briefly about this on Friday, and it's where I was supposed to paste this discussion that was all queued up. But, the euro has problems. the currency is only worth more than the dollar because the dollar's problems are worse. But, they will get to a more even playing field should the German Court declare the actions illegal. The ruling can always be appealed, and daisy chain this thing out for months. But, I wanted to bring this to your attention now. I thank reader Tom for pointing me to this last week.

Well. Friday's Jobs Jamboree was very disappointing, folks. the overall net number of jobs created was a big fat ZERO! And that included 87,000 jobs added by the birth / death model, where the BLS continues to believe that with 400,000+ people still filing for unemployment claims each week, and with a Fed that is discussing options for stimulating an economy, that there are still more new companies started each month and ones that closed their doors. Yes, there were 46,000 Verizon workers that were on strike, but even still. 46,000 give or take plus or minus depending on who you believe is not going to keep up with the population growth!

My friend, John Mauldin, did a great job of going through the prospects for job growth here in his letter last Friday. www.2000wave.com The part I found really interesting is the increase of workers that are 55 and older in the workforce. It means that either people want to work when they should be retiring or that they HAVE to work. Either way, those are jobs that would normally turn over to younger people. and they are not! Interesting stuff.

So. the Jobs Jamboree was absolutely awful. and it sent Gold to the moon! At one point on Friday, Gold was up $50 on the day. And then yesterday, with the U.S. markets closed, Gold soared past $1,900 once again, reaching for the stars at $1,921, before that turned around and the profit taking began to pile up. and this morning the shiny metal sits within spitting' distance of $,1900 at $1,898.

But, with Gold soaring, the rest of the risk assets were sold off. Thus one more time, I'll point out that Gold has become more than just a commodity, it's real money. and money that doesn't have creditors, liens against it, it can't be run through a printing press, and I could go on. but you've heard it all from me before.

OK. this morning. something big has happened to the Swiss franc in the overnight trading. The Swiss National Bank (SNB) has stepped into the currency markets BIG TIME, folks.. and this time it's not just intervention, which has shown to be non-effective to stem the franc's rise. This time the SNB has stepped outside the lines. They have basically taken the franc off the "list of free floating currencies". The SNB announced that they had set a maximum amount the franc would rise to at 1.20 francs to euros. The franc immediately dropped 6.7% VS the euro. and over on the franc to dollars cross, it lost another 6%... You see, the SNB's manipulation of the franc is mainly against the euro, but, because of all the crosses in currencies. if francs are getting sold against euros, they'll also get sold against dollars, and yen, and every other currency cross.

Now. you may recall that a couple of years ago, the SNB said they wanted to defend the franc / euro cross at 1.50. And that was impossible to do for the SNB to defend, because at that point the franc was still considered weak. Now.. the SNB has picked a rate that still represents franc strength. and the SNB hopes this doesn't upset the markets too much. The SNB has announced that they will defend the level by buying large quantities of other currencies, which in this case would be euros.

But there's that fly in the ointment again. if the German court upsets the applecart tomorrow, will the SNB really want to be buying a sinking euro? They'll have to or admit defeat again.

Moving on. The Reserve Bank of Australia (RBA) met last night, and left their OCR (Official Cash Rate) unchanged, and then went on to deliver a balanced statement with a bias toward tightening rates, but leaning pretty much toward a neutral bias. That had to tick those guys off that were all screaming from the rooftops that the RBA would cut interest rates at this meeting. You were wrong! So go away, don't go away mad, just go away!

The recent data from Sweden isn't exactly giving me a warm and fuzzy feeling about more rate hikes from the Riksbank. Most recently, Consumer and Industrial Confidence were down sharply. So. unless the euro is going to push higher, the krona will have a difficult time finding terra firma, going forward. Things have turned on a dime here. pretty amazing.

Next door, Norway continues to be the best fiscal / monetary balance sheet country in the world. They've recently discovered a new source of oil, so their future looks so bright they have to wear shades. The krone though, continues to get tarred with the same brush as the euro. One of these days that will break, when the markets figure out that the krone isn't the euro or anything like the euro, but instead what I've always called it the euro alternative! But for now. that's not what goes on.

The changes the Brazilian Central Bank made last week, have really thrown a spanner in the real's rise. In case you forgot, the BCB, cut rates by 1/2% and sent out a message that more cuts were on the way. The real has lost about 4% since then. This may be the thing the Gov't has been looking for folks, as they have long wanted to stem the real's rise. But, has the Gov't forgotten the reason their interest rates were so high? Inflation was so darn high! And it still is! So. the Gov't has torn a page out of the Fed's book on promoting growth while ignoring the inflation risks. We'll have to see if it works. I doubt it will!

On Friday, were waiting for the Chinese Manufacturing report to print. and it finally did over the weekend. The Chinese manufacturing index slipped a bit from July, but August's number was still a healthy 57.6. (remember, anything above 50 represents expansion) So. the global growth campers do have a pulse, folks. but I do believe that it all resides in Asia and the South Pacific. Can they continue to grow without the U.S. and Europe? Don't forget, that China has done a magnificent job of turning their economy toward domestic driven instead of export driven. Exports still rule, but not by as large a margin.

Then there was this. From the WSJ. " The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.

The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.

The government didn't say how much it is seeking in damages. It said it wants to have the securities sales canceled and wants to be compensated for lost principal, interest payments as well as for attorney fees.

The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies."

Chuck again. I removed the names of the banks mentioned in the story, because I don't want it to look as if I'm picking on a particular bank or banks. But you can read the story on the WSJ if you have subscription like I do!

To recap. the Jobs Jamboree was absolutely awful, and propelled Gold to a $50 gain on Friday, with more gains yesterday, while we enjoyed the Holiday. Gold soared past $1,900 yesterday, but then saw profit taking. The SNB announced a floor for the franc VS the euro, and will not allow it to be stronger than 1.20 (like 1.19 would be stronger given the way it is priced in European terms) . As I get ready to close the letter Gold has slipped back $15. I guess the NY boys and girls are arriving at their desks. and then a BIG story for tomorrow, as a German court is going to decide if the bailouts given to Greece, Ireland and Portugal were legal. The repercussions of a negative decision here run very deep.

Currencies today 9/6/11. American Style: A$ $1.0565, kiwi .8315, C$ $ 1.0095, euro 1.4165, sterling 1.6080, Swiss $1.1760, . European Style: rand 7.1145, krone 5.42, SEK 6.4480, forint 195.50, zloty 2.99, koruna 17.25, RUB 29.47, yen 77.25, sing 1.2065, HKD 7.7933, INR 46.07, China 6.3898, pesos 12.53, BRL 1.6450, dollar index 75.22, Oil $84.58, 10-year 1.98% (can you believe this? ) Silver $41.92, and Gold. $1,884.85

That's it for today. My beloved Missouri Tigers got the season started in the right direction with a win on Saturday. It wasn't pretty, but they weren't playing a cupcake team either! The annual Butler Labor Day Barbeque was a blast this past weekend. There were so many little kids! Did you hear about the bank robbery in St. Louis on Friday? Traffic was stopped on a major highway, and then the people began finding money on the road! It was as if it was dropped from a helicopter! HAHAHAHAHA! A rough weekend for my Cardinals, and they can start playing the AAA guys now, as they are out of the race. And with that. Chris will have the conn on the Pfennig tomorrow morning. and I thank you for reading the Pfennig! Now go out and have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 09-06-2011 9:57 AM by Chuck Butler
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