Holiday trading pattern prevails
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In This Issue.

*All quiet on the western front...
*Durable goods double take... 
*Personal income and spending slow... 
*China trades to a 17 year high...

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

Holiday trading pattern prevails

Good day.and welcome to the final week of 2011. Hopefully everybody had a chance to enjoy their holiday celebrations and spend time with those who matter the most. It seems like just last week that we were putting the finishing touches on 2010, but at the same time, this year was packed with all kinds of news worthy events, some of which feel like they had taken place long ago. Friday turned out to be a very quiet day and Monday proved to be even more tranquil as the US and other markets had the day off.

This week looks to be fairly uneventful as the economic data reports will be few and far between not only here in the US but also around the globe. The risk of higher volatility exists in thinner markets but there really isn't much on the docket in terms of market moving info, except for those trying to square up their books for year end. In fact, Tuesday and Thursday will be the only days this week that carry any type of data worth talking about, but even that will be limited.

Although Friday didn't bring much in the way of market action, we did see a handful of reports that continued to show a mixed bag for the US economy in November. The durable goods figure did rise by 3.8% in November, the most in four months, and the October result was revised up to 0.0% from -0.7%. While this looks good on the surface, a deeper look revealed that demand for business equipment, excluding military and aircraft orders, actually contracted by 1.2% and was the biggest decline since January.

In other words, consumer spending wasn't at play and the government is still taking a large role in keeping the US economy chugging along. Question markets about the US and European economies are still keeping many businesses and investors on the sidelines and ultimately the purse strings tight. Chuck sent me some thoughts that go along with that sentiment, so here you go:

"The final revision of 3rd QTR GDP, which as you might recall was initially printed at 2.4%
came in at just 1.8%!!!!   I told you all this number when printed at 2.4% would be revised lower, and...
it kept going lower until finally bottoming out at 1.8%...
Consumer spending was the big culprit... you see, those economists use these models
that show what GDP will be if consumers spend "x"... and they were receiving reports from retailers
that sales were strong...
On Friday, I gathered up my beautiful bride, and son Alex, and headed to the mall...
call me crazy, but I thought that walking around the mall the day before Christmas Eve
would really be cool...  But I tell you what I saw... besides truck loads of people walking around too...
Every story had a "sale"... and I'm not talking about a small discount sale... I'm talking about
the stuff that deep discount sales are all about!  40% off, with an additional 25% at check-out
buy one at a discount, and get the second 1/2 price... and so on...
I don't think this will turn out to be the bonanza Christmas shopping season it was thought to be...
but I've said that from the beginning!  It takes deep discounts to get the people in the store, and even then
there weren't many shopping bags leaving the stores...
So... the end result for the economy is that consumer spending isn't driving it...
Gov't spending is...   We've seen this picture for some time now, and it won't have a happy ending for us!"

The expiration of some tax incentives at year end may help the December production numbers, but times are still tough for Joe Six Pack. While the jobless claims have seen some improvement, the November personal income and spending numbers still show restraint. Consumer income only rose 0.1%, down from the October figure of 0.4%, so spending didn't change and held at 0.1% as well. As Chuck mentioned, retail has been promotion driven and consumers are very much value conscious when it comes to spending their hard earned money.

Lastly, we had the new home sales figures for November and continued to show signs that the housing market is continuing to stabilize. Sales of new homes did rise 1.6% to an annual pace of 315k, which matched predictions from a majority of economists. The housing market still hasn't shown signs of sustained improvement, but I guess it's better than the alternative. I've noticed while driving around St. Louis there are some new homes being built in developments that have been idle for 3 or 4 years, but nothing large scale. A home here or a home there is what I've noticed, and that pretty much coincides with that report.

Sales of previously owned homes now accounts for about 94% of the market so new home sales don't provide the same broad market indication that it did in the past. Still, this year could surpass 2010 as the worst year for new home sales and another round of foreclosed homes are expected to hit the market. While the number of homes sold has shown some life, the prices continue to fall, albeit at a much slower pace than in the past.

On that note, we have several reports due this morning which includes a gauge of October home prices, consumer confidence for December, along with the Richmond and Dallas manufacturing numbers. I think the focus today will be the results on home prices, as they are expected to show another decline of just over 3% but should show some improvement from September's 3.6% fall. Housing is still a weak link in the economy and home prices are expected to continue falling through mid 2012.

We also have December consumer confidence, which is expected to rise, and should be supported by the recent gains in the stock market and better jobs numbers of the past couple of weeks. Other than that, we round out the day with the regional manufacturing reports so all in all, a fairly quiet day is to be expected. If these reports do actually yield the slight improvements, look for the dollar to weaken as investors take on riskier assets assuming headlines in Europe remain quiet.

There really isn't much to talk about currency wise other than good news from the US and Europe continues to push the dollar lower, or in other words, no news is good news. The currencies traded in a tight range both Friday and yesterday but we should see a little more excitement today as the US markets come back online. The only two currencies that had traded beyond a 0.25% radius were the pound sterling and Norwegian krone, which both lost about 0.50%.

The pound saw some selling as October services output fell the most in six months, which indicates a slowdown could be imminent for the 4th quarter. The results of 3rd quarter GDP were better than expected by rising 0.60%, but the near term outlook in Britain has turned darker and any escalation of the European crisis would be enough to send it into negative territory. Expansion is being hampered by high unemployment, which also has government officials considering additional stimulus measures so there are still plenty of issues to deal with in the UK.

The two best performing currencies were the South African rand and Australian dollar, which both appreciated by about 0.25%. The rand will end the year as the worst performer but it has started to see some life lately from commodities and a higher risk tolerance in the overall market. The currency has a high correlation to gold and is very sensitive to risk aversion so it's one of the more volatile currencies in the market. The South African economy is not the most stable as far as economic and fiscal policies are concerned, so use caution and moderation when it comes to this currency.

The Aussie traded above 1.0150 on the same basis, but its underlying economy and strong ties to China would provide justification to keep the Australian dollar as one of the core currencies for the long haul. The New Zealand dollar lost a bit in reaction to another earthquake in Christchurch. Luckily there was little structural damage from the magnitude 5.8 quake and was welcomed news as their economy is trying to put the previous quakes in the rear view mirror.

While I'm in the region, I might as well mention that the Chinese renminbi rose to the strongest level in 17 years as policy makers continue to tolerate appreciation. In fact, the currency traded into the 6.31 handle and was hovering at 6.3195 when I checked on things yesterday afternoon. Even though Fitch cut the Asian GDP forecast for 2012, including a revision of China down to 8.2% from 8.5%, the region should continue to be in the driver's seat for global growth.

When I came in this morning, most of the currencies are marginally higher than yesterday as the dollar index is down in anticipation of the better consumer confidence and manufacturing numbers that will be released in a couple of hours. Gold has dropped close to $10, which is currently trading under $1600, and silver has dropped below $29. If the reports do actually come in as expected, look for both the dollar and metals to continue falling today unless anything in Europe rocks the boat.

Then there was this. The wealth gap between Congress members and voters keeps widening. Disparity in personal wealth between U.S. congressional members and those they represent has been widening for decades. The median net worth of a House member increased from $280,000 in 1984 to $725,000 in 2009. Meanwhile, the wealth of a typical American family declined from $20,600 to $20,500, according to the University of Michigan's Panel Study of Income Dynamics. 

Recap.The markets remained very quiet on Friday and Monday as many were closed for the Christmas holiday. This week is shaping up to be a quiet one as well with little in the economic data department to evaluate. We did see higher durable goods numbers on Friday but was due to government and aircraft purchases. Personal income and spending fell while new homes sales managed to squeeze a small gain. The currencies traded in a very tight range but China did break into the 6.31 handle.

Currencies today 12/27/11. American Style: A$ 1.0165, kiwi .7743, C$ .9806, euro 1.3076, sterling 1.5658, Swiss $1.0713, European Style: rand 8.1564, krone 5.9546, SEK 6.8585, forint 234.46, zloty 3.3770, koruna 19.7190, RUB 31.1840, yen 77.84, sing 1.2963, HKD 7.7765, INR 53.03, China 6.3219, pesos 13.8483, BRL 1.8547, Dollar Index 79.80, Oil $99.96, 10-year 2.02%, Silver $28.98, and Gold. $1598.29

That's it for today.As I mentioned at the beginning, I hope everyone enjoyed themselves over the holiday. I know I sure did. Family, friends, food, and doesn't get much better than that. I'll be steering the ship for the rest of the week as Chuck and Chris enjoy some well deserved time off, so you have that to look forward to. I saw that I lost our office fantasy football Superbowl to Jamie in our Wealth Management division, so congrats Jamie. Also, congrats to our Missouri Tigers for winning the Independence Bowl against North Carolina. Anyway, I have a lot to do this morning so I'll let you go. Until tomorrow, Have a Great Day!!

Mike Meyer
Assistant Vice President
EverBank World Markets

Posted 12-27-2011 8:49 AM by Chuck Butler
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