It was all about the Fed meeting.
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In This Issue.

* Retail sales increased

* Chuck gives his thoughts

* Fitch raised Greek rating

* Yen and gold took a hit

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

It was all about the Fed meeting.

Good day...and a Wonderful Wednesday to one and all. As Chuck mentioned yesterday, both he and Chris will be out for the remainder of the week so I'll be at master control heading into the weekend. It was a nice surprise to see the temp gauge in my car hovering in the mid 80's as I left the office last night, so it felt more like the beginning of summer as opposed to the tail end of winter. Not that I'm complaining, but somewhere along the line I'm sure the natural progression of seasons will take over and give us a dose of reality.

As I was watching the market reactions yesterday, there seemed to be a lot of optimism floating around as equities rose to their highest levels since 2007 and the dollar, according to the dollar index, finished the day above 80. Yesterday started out with a bang on US trading as retail sales came in, as expected, with a 1.1% gain for February. This rise, which was the biggest in five months, coupled with a small upward revision to January's number had many jumping for joy. The higher retail numbers were being attributed to the better job reports of late, which does provide support, but I would like to see a lot more before I join the masses by dancing in the streets.

While the mainstream media doesn't put much focus on this, I usually take a moment to glance at the "ex auto and gas" figure to get a deeper sense of where things stand. This report painted a different picture than the headline report. We did see it come in at a higher than expected 0.6%, but it was actually lower than the 1.0% revision to January. The initial figure from January was 0.6%, so even if we take that higher revision out of the equation, we didn't see the same type of movement. While vehicle sales did have a good month, it looks to me that higher gas prices are starting to play a bigger role.

Consumers can deal with higher fuel prices in the short run, but if we continue to see oil prices rise, there will be a competition for that discretionary income. I think the priority for most people will be to keep the gas needle from hitting E rather than buying a new summer wardrobe, so it'll be interesting to see how things progress over the next few months. I don't see too many scenarios on the horizon that would keep a lid on oil prices except for another round of global growth worries. I went on a tangent there so I'll steer us back on track.

Moving on to the other data reports from yesterday, we saw confidence among small business owners climb to a one year high in February as profits have been on the rise. At the same time, the report also revealed they weren't as keen on the economy as a whole. Expectations for better business conditions over the next six months fell as did intentions of making additional capital purchases so it turned out to be a mixed bag. Once the data cupboards were drained, the markets remained in a holding pattern until early afternoon when the results of the Fed meeting finally hit the airwaves.

Chuck sent me some thoughts on the Fed's meeting and more before he heads down to south Florida for his annual spring training pilgrimage, so here you go.

"Well. the Fed's FOMC meeting ended yesterday with the Fed leaving rates unchanged (there was one Fed Head that vote to raise rates!), and refused to offer any information on future programs that are being tossed around to bolster the economy. In their assessment of the economy, the Fed Heads acknowledged improvements in the labor market, but did put out the caution flag saying that risks remain that inflation could rise temporarily because of recent increase in oil and gas prices.

Hmmm. I go back to about a year ago. Didn't Big Ben tell us that the rising inflation we saw then was "only transitory"? Well, the U.S. consumer has to feel as though that inflation has transitoried into their pockets!"

Moving on. for these are not the droids we're looking for. Look who's touting currency diversification. You wouldn't guess in a million years, we used to say as kids. But back in 1995, the U.S. dollar was under pressure and then U.S. Treasury Secretary, Robert Rubin, made it a point to say that "a strong dollar is in the best interest of the U.S. " In other words, he was telling anyone that was courageous enough to short the dollar, that the U.S. would not stand idly by. This scared the bejeebers out of the markets, and soon we were experiencing a strong dollar trend.

Well, just the other day, Robert Rubin, yes, that same Robert Rubin from 1995, said he has too much of his personal investments in the currency.

A "disproportionate amount" of his assets is in cash and he "should be more allocated away from the dollar," Rubin, 73, said the other day in a speech at the TradeTech conference in New York. He said he also was "greatly over-weighed" in private equity and had investments in hedge funds."

And before I hand it back over to Mike. You all know that I've said quite a few times recently that I believe that the economy is presently in the "eye of the storm", and that the bad stuff on the other side would be worse than the original storm in 2008. Well, here's a story that plays well with that thought.

The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year - with grim implications for Europe's Latin bloc.

Data collected by Simon Ward at Henderson Global Investors shows that M1 money supply growth in the big G7 economies and leading E7 emerging powers buckled over the winter.

The gauge - known as six-month real narrow money - peaked at 5.1pc in November. It dropped to 3.6pc in January, and to 2.1pc in February.

This is comparable to falls seen in mid-2008 in the months leading up to the Great Recession, and which caught central banks so badly off guard.

"The speed of the drop-off is worrying. This acts with a six months lag time so we can expect global growth to peak in May. There may be a sharp slowdown in the second half," said Mr Ward.

And with that. I wanted to wean you slowly away from my writing, so this will serve as the last official words you hear from me for the next two weeks! I'm not even taking my laptop with me! So. back to Mike!"

Thanks for those departing words. As Chuck mentioned, the Fed still kept global concerns on the table, but investors seemed to parlay the better retail numbers with the acknowledgement of labor improvement by the Fed into an official improvement stance. It wasn't too long ago that policy makers actually lowered their forecasts, but the April meeting will have more teeth as they offer up an update to their official economic assessment followed by commentary from Bernanke.

Moving over to the currency market, I guess you could call it a choppy day but the dollar index did remain positive throughout the session. Remember, the euro comprises a majority of this measure followed by the yen, so it doesn't give a true sense of the overall market. Focusing on the euro for a moment, we did see some positive news that helped to keep the currency in a 1.31 handle until the Fed meeting pushed it back into the 1.30 range. German investor confidence rose more than forecast in March and marked the 4th straight increase. As some of the doomsday scenarios surrounding the debt crisis have eased a bit, at least for the moment, investors felt a little more comfortable.

Speaking of the debt crisis, Fitch decided to raise the Greek credit rating four levels to B- from the previous rating of restricted default. The new government bonds were given this B- rating while outstanding debt not governed by Greek law has a C rating until settlement in April. Fitch said in a statement that completion of the exchange has cured the rating default event and the distressed debt exchange along with the losses imposed on bondholders have significantly improved Greece's debt service profile and reduced the risk for a recurrence of near term repayment difficulties on the new Greek government securities.

Fitch also decided to give Greece a stable outlook, which seems a little overzealous to me. It almost reminds me of credit card companies sending invites to those who recently filed bankruptcy, which is a risky proposition. While it may be a while before things could get back to where they were, the propensity still remains. Hopefully this was a final wakeup call and the train stays on track. Just to wrap this up, Fitch did acknowledge default risk is still elevated and challenges remain so it looks like they're trying to cover both sides of the plate.

The dollar strength was primarily confined to a handful of assets, which also included the Japanese yen. The yen fell to nearly a one year low as it briefly traded into the 83 handle. We saw the currency begin to fall last month as policy makers unexpectedly boosted the bond buying program, but the trend has gained steam as the Bank of Japan continues to take steps in tackling deflation. Chuck has warned about the yen's shaky foundation for a while, so this shouldn't be a surprise, but its nearly 1% loss yesterday made it the worst performing currency.

Gold was the other unfortunate asset that got smacked around a little bit. It ended the day around $1675, losing about $25, but the majority of the loss came after the Fed meeting. In fact, gold was hovering around positive territory early on, but lost its luster when investors saw rays of light shining through the US economy. You would think acknowledgement of higher inflation would be enough to support its pricing, but the rose colored glasses in the US and Europe kept gold in the red.

Speaking of the Mexican peso, it did turn in the best performance of the day by rising just over 0.75%. The majority of its rise resulted from a free ride on the US data train, but they did see industrial production rise in January. Again, there is just too much risk associated with the underlying economy, but thought I would at least give an update as promised. The Canadian dollar also took a free ride as the pro-North American trade carried the currency to just under a 0.5% gain. While there wasn't any data out of Canada, they at least have supportive fundamentals.

The Aussie and New Zealand dollar both posted gains as higher stock prices provided some wind for their sales. We did have some stronger housing and food price numbers out of New Zealand that gave the currency an extra push to finish the day in second place, but both currencies, more so the Aussie, are also proxies for global growth so thoughts of sustained improvement in the US definitely helped. All in all, it turned out to be a good day for currencies tied to North America and higher global growth but a not so good day for safe havens, such as gold.

As I came in this morning, the dollar held onto its relative strength from yesterday as all of the major currencies, including China, are in the red. Gold has taken another hit so far this morning and is down $15. It looks like the euphoria in the markets spurred by the Fed has rolled over into early trading and there isn't much on the docket today that would appear to turn the tide. Barring any rogue headlines about the European debt crisis, it looks like the table is set for the US dollar.

Then there was this. The Federal Reserve announced that 15 of the 19 biggest financial institutions in the U.S. have the capital to survive a deep recession. "When you put banks under the kind of dramatic scenarios that the Fed did -- and they are still doing well -- it tells you how well capitalized the majority of the banks are coming out of this downturn," said Michael Scanlon, a senior equity analyst at Manulife Asset Management. However, signs remain that the financial industry hasn't completely recovered from the global financial crisis.

To recap...Retail sales in the US gave a kick start for the dollar as overall sales rose to a 5 month high of 1.1%, but continually high gas prices could steal from consumer discretionary spending. Small business sentiment did rise but owners are sill hesitant to go all in with the economy as a whole. Chuck gives us some thoughts on the Fed meeting and the currency market was choppy at best, although the dollar did see strength. Euros, yen, and gold took a hit as US economic optimism took hold and currencies associated with global growth saw a decent day.

Currencies today. American Style: A$ $1.0474, kiwi .8119, C$ $1.0087, euro 1.3067, sterling 1.5705, Swiss $1.0792, . European Style: rand 7.5633, krone 5.7254, SEK 6.7924, forint 223.01, zloty 3.1660, koruna 18.8245, RUB 29.45, yen 83.45, sing 1.2646, HKD 7.7617, INR 49.96, China 6.3321, pesos 12.6057, BRL 1.7922, Dollar Index 80.29, Oil $106.48, 10-year 2.19%, Silver $33.05, and Gold. $1,658.15

That's it for always takes me a while to get adjusted to the day light savings switch as it seems like the nights go by so much quickly. I'm still used to several hours of darkness before its time to hit the sack. It's that time of the year again where sports fans will be glued to the tv all week and into the weekend with college basketball's March Madness. We're lucky enough to have both Mizzou and SLU in the tourney, so the best of luck to them. With that said, it's time to get the day started. So, until tomorrow.Have a Great Day.

Mike Meyer

Assistant Vice President

EverBank World Markets



Posted 03-14-2012 12:19 PM by Chuck Butler