Congress gives us all a present, but who is paying for it ???
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In This Issue.

* Congress extends the tax cut...
* Data is mixed... 
* Dollar trends lower on very low trading volumes... 
* Merry Christmas from Chuck...

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

Congress gives us all a present, but who is paying for it ???

Good day. I hope all of you received the card we sent out yesterday.  This year our names were included right on the card, so we don't have to follow up with everyone on who's who.  I was out a bit late last night at a big shindig downtown, so this will be a bit shorter than usual. 

The big news this morning is the extension of the payroll tax cut.  I don't think it was ever really a question whether or not it would be extended.  Neither party wanted to be accused of raising taxes or not extending the unemployment benefits.  That is the problem with Congress, they just can't help themselves in spending taxpayers money.  I will probably get a few readers writing in about how not extending the tax cut and benefits would sink our economy, but both of these policies will contribute to our debt.  But congress is really good at kicking the can down the road.  Nobody wants to deal with the tough questions at the holiday time, and next year is an election year, so don't think it will be addressed then.  That is the problem, there is never a good time to address the big problems our country faces.

We had a plethora of data releases yesterday, but the headlines concentrated on the good news which seems appropriate during this holiday season.  4,000 fewer Americans filed for jobless benefits last week bringing down the overall number to 364k, the lowest since April of 2008.  The Bloomberg Consumer Comfort index improved to minus 45 from a reading of minus 49.9 the prior week. The U of Mich confidence number was also higher, coming in at 69.9 for December compared to 67.7 for November.  These reports were greeted with cheers from the folks who buy stocks, as they desperately search for a spark for the Santa Claus rally.  The trend of higher employment and more confident consumers is definitely a good sign for the US economy.  And the leading indicators are indicating the future is a bit brighter than expected.  They were predicted to be up .3%, but came in up .5%.

But there was other data released yesterday morning which wasn't so cheery.  GDP for the third quarter was lower than expected at 1.8%, and personal consumption was lower at 1.7%.  But most of the economists are predicting a better 4th quarter, so in the spirit of the holidays they ignored the bad data and focused on the good.

The good economic news equated to dollar selling.  The dollar weakened against most of the major currencies, but none of the moves were very big.  The euro and pound sterling are both unchanged.  The biggest gainers are the commodity currencies with the South African Rand up just below 1% and the Canadian dollar, Australian dollar, New Zealand dollar, Mexican peso, and Brazilian real all booking gains vs. the US$.  The Swedish krona and Singapore dollars were also up slightly.  The biggest loser vs. the dollar was the Norwegian krone which was down .71%.  As I said earlier, all of the currencies are basically in a holding pattern as the markets are very thin and traders just don't seem to want to put on big positions going into the last week of the year.

Since I knew I was probably going to be a bit short on content this morning, I asked Frank Trotter to put together something for me to use in this morning's Pfennig.  Frank took a story which appeared on the front page of our St. Louis Post Dispatch and produced the following op-ed piece for me to include. 

Every year in our little river town out in the great flyover, a tradition dating back nearly 150 years is celebrated by the five through one percent at a black-tie ball reminiscent of period movies.  Young ladies in their college sophomore year are presented to society and a Queen is chosen with great pomp and circumstance.  Attendees eat and drink (a lot) in long dresses and white gloves.  It's an elegant event which I've been to and participated in many times and which your faithful Pfennig correspondent Chris Gaffney attended to all hours last night; since I am writing this Thursday morning we just hope he makes it in at all.

Across the street from the soiree is one of the most trafficked national parks in the county - the Gateway Arch.  Completed in 1965 the arch was built to commemorate the westward expansion of the United States and has become the symbol of Saint Louis.  What little remains of our local paper this morning featured smiling officials announcing a $578 million overhaul to the grounds of the Arch.  "This is not wildly expensive for what we are going to go get . . ." a representative of the group promoting the idea says.  Sigh . . .

Long time readers of the Daily Pfennig® columns will recognize what comes next.  What in the blankety blank are we doing smiling and promoting a project has the potential to increase the burden on federal, state and local taxpayers (there are no current appropriations and some private money will be used) to redistribute income for a short period to contractors and workers for a project that has no ongoing productive capacity except to draw tourists.  Both our democratic and republican senators have issued statements proclaiming the great value of the initial federal grants.  Now in the great scheme of things even if the Feds were to fund the entire project it's a rounding error on what really matters in the budget; it's just a flat screen TV versus that huge mortgage we have outstanding.  And I happen to think that the national park system is pretty special in US even if the Nature Conservancy could run them better.  But of course these all add up.

Homeowners began to discover in 2008 the consequences of too much leverage and betting on never ending housing price increases.  Often this built up flat-screen by flat-screen on top of the great cash-out mortgage for landscaping projects.  Greece has received notice from the invisible hand of the market that enough is enough after promising the moon to its citizens with little thought to source of funds.  Given the state of our finances there is open talk of no risk-free rate in the market, a status usually reserved for US Treasury debt.  While it's reasonable to say that the US is a ways off from failed bond auctions it is also apparent that no administration or congress visible on the horizon is likely to take any action that really makes a difference.  The offshoot of this continues to convince us that while there may be volatility and even rallies in the US dollar as one mini-crisis after another is recognized and assessed by an attention deficit market, the US dollar is likely to decline in the intermediate to long term.

Chris again.  While I certainly like to see improvements made to our great city, I have to agree with Frank that this money could certainly be put to better use right now, and I shudder to think how many other 'roads to nowhere' are being funded with debt our children and grandchildren will be paying off.

Then there was this: Ty Keough sent me the following story from Bloomberg which does a great job of discussing the Euro-zone debt problems, and the path the ECB has taken in an attempt to calm the markets.  This story takes a slightly different view of things in Europe, and is definitely worth a look.


Currencies today 12/23/11. American Style: A$ 1.0165, kiwi .7746, C$ .9817, euro 1.3074, sterling 1.5683, Swiss $1.069, European Style: rand 8.1611, krone 5.9507, SEK 6.8588, forint 234.76, zloty 3.393, koruna 19.745, RUB 31.186, yen 78.04, sing 1.2933, HKD 7.777, INR 52.9587, China 6.3374, pesos 13.8124, BRL 1.8546, Dollar Index 79.80, Oil $99.88, 10-year 1.96%, Silver $29.2125, and Gold. $1,607.60

That's it for today.  Mizzou got another win last night, and the Cardinals signed Beltran.  Now if the Rams can just lose their two remaining games and grab the 1st round pick.  I had a good time at the ball last night (a bit too good), so I think I will try to sneak out and get some breakfast sandwiches and coffee for the desk this morning.  Tradition is important to us here in EverBank WorldMarkets, and one tradition which all of us on the desk really look forward to is Chuck's Christmas Pfennig.  Each year, Chuck works all of our names into the traditional Night Before Christmas poem.  I think he has done a terrific job this year, so here is Chuck's Christmas wishes:

T'was the Night Before Christmas
and boy what a mess
Europe's in shambles,
And your Pfennig writer has much stress...
Because what's good for the goose
is good for the gander
So we're not exempt because our debt is grander!
But, it's Christmas, a time for joy
and so with that, I'll pass out the toys
for the good girls and boys I work with each day
and hope they accept this instead of hefty pay!
So...I call off the roll call and call them by name
Chris Gaffney, and Mike Meyer, And Jennifer McLean
There's our little Christine, with Tim, Ty, and Aaron
with Lori (Gidget), Mike (Cisco) and Antoine, standing there starrin'
For they know not what I have for them in store
But the suspense is over, as I walk through the door!
I've decided to give each one the same
Breakfast sandwiches, Hey! these aren't lame!
So, I went straight to work,
and then turning with a jerk
I see the Big Boss, Frank Trotter coming through the door
He been playing hockey he's red in the face!
Frank & I have worked together so long
that when we began this journey together
I had a full head of hair, and singing a song!
To my dear readers, I thank each day
my friends in Operations, and marketing
I shout, Hooray!
The products group and tech group I give thanks
And the leagle beagles, and management that allow
me to Opine...
I've given out all the gifts so it must be time to go
but first, I do believe that there's more to this show!
I thank my beautiful bride,
for always supporting me,
Along with all the kids...
for whom, I have so much pride...
I stop to think about how many Pfennigs I've done
that go out each day before we see a rise in the sun!
And the countless hours of research and reading
that go into each days attempt to be creative...
So... I think about our country's debt
and it worries me so
But, hope that my warnings will finally be heard
by more than faithful readers, Maybe the World!
And with my final thought I slip out of sight
and proclaim...
Merry Christmas to all...
and to all a good night!
May the light of faith, the warmth of heart, and the love of family be your gifts this year!
and don't forget... the happiest sight you'll see, is the carol that you sing, right within your heart...
Thank you and goodnight

Chris Gaffney, CFA
Vice President
EverBank World Markets

Posted 12-23-2011 4:10 PM by Chuck Butler
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