Bad News Begins To Build Up Against The Dollar.
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In This Issue.

* Draghi sounds upbeat, euro soars.

* Gold adds $20!

* A$ reaches for the stars.

* Yen weakness continues.

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

Bad News Begins To Build Up Against The Dollar.

Good day. And a Happy Friday to one and all! So far so good this morning, so I've got that going for me! The first full week of the year, always seems to be long. Especially if you see a full year's calendar! I turned on the iPod this morning, and Alvin Lee is playing: I'm Going Home. Did you ever see him perform that in the Woodstock movie? One of my all-time fave songs and performances.

Well. after I signed off yesterday, things began to heat up. By mid-morning, the euro was pushing toward 1.32 and taking the other "little dogs" along for the run to chase the dollar down the street. I saw a story title on the Bloomberg this morning that made me laugh. The title was: "Gold falls on stronger dollar" Hmmm. I wonder if the writer had seen the dollar's performance this week before submitting that story! Yes, the dollar has started 2013, the way I would think it would given the problems that the U.S. faces between now and March 27th.

I outlined them for you last week, so I won't go into that again, but you all know what I'm talking about. Oh, BTW. we breached the debt ceiling on December 31st. Right now, we're operating on the "extraordinary measures" that outgoing Treasury Sec. Tim Geithner implanted. But, as I told you the other day, an independent company believes those "extraordinary measures" will run out sometime between mid-Feb and March 1st. We've already breached the debt limit by nearly $23 Billion dollars! And then the fun and games begin. I've got an interesting piece for you in the TTWS section of the Pfennig this morning, that relates to the debt ceiling. You'll want to make sure you don't miss that!

So. the currencies, led by the euro, (just like the "old days") gained against the dollar yesterday. For what reason? Well. I told you that the European Central Bank (ECB) meeting would be no great shakes. I was wrong. Apparently, there was a great shake (probably from Crown Candy, yum!) in the ECB meeting. it came when ECB President Mario Draghi said that he saw positive signs in the Eurozone economy. I particularly liked this quote from Draghi, "We spoke a lot about contagion when things go poorly, but I believe there is a positive contagion when things go well. And I think that's also what is in play now. There is a positive contagion." - Mario Draghi

I don't think the markets were ready for an upbeat ECB. Now, this in no way signals that the ECB is calling off the dogs, and that they believe that everything will be seashells and balloons from here on out! No. The ECB is quite aware that the wolf is always at the door in the Eurozone. but for now, the relative calm that I've talked about in recent months, is allowing the ECB to breathe easier. The relative calm has been the ECB's "breathe-right strip"!

So. hearing this talk of stronger growth and better times from the ECB, the euro took off! Soon 1.32 was taken out, and the single unit pushed to 1.3270. The euro has given back a small piece this morning, but what was impressive was that move yesterday. It was the "perfect storm" for the euro, given the strong Chinese data in the early morning, the news that Spain's bond auction was better than expected, and then the ECB comments later in the morning.

And the dollar wasn't seeing anything to support it. The Weekly Initial Jobless Claims increased again moving to 371,000 last week. In addition, the job front isn't getting any good news either. American Express announced that they would be cutting 8.5% of their work force, (5,400 jobs) and Morgan Stanley said they would cut 1,600 workers. In a separate report, an analyst forecast that 5,000 jobs would be gone from Morgan Stanley before June. It's my experience in these times that leads me to believe that we'll see more and more of these announcements. It's like piling on without a penalty. you can hear these companies saying, "hey! Everyone else is making a job cut announcement, let's get ours out there too, so no one notices".

Last night, we had two Fed Heads, (Bullard and Kocherlakota) and each had their own agenda. Bullard was upset that the Fed has tied fed policy to economic data. And Kocherlakota believes that Fed policy is "too tight". If you were the leader of a country, wouldn't you be laughing right now? I mean what's going on in the U.S. would have to be funny to someone on the outside. Unfortunately, we're on the inside, and it's not so funny inside here.

The U.S. data cupboard will print November's Trade Deficit this morning. It should show a small narrowing from October's $42.2 Billion deficit. Oil prices were cheaper in November, if you recall. BTW I'm still looking for the $40 oil that was promised me in May of 2011. I also heard about it April of 2012. I'm not poking fun at anyone for making that call. I'm simply saying that I'm still waiting!

The Aussie dollar (A$) really reached for the stars yesterday, and as a result, traders are betting that the gains were excessive, and thus a bout of profit taking for the A$... As I've said quite a few times in the past year. I truly believe that a $1.04 -1.05 range for the A$ is a fair value for the currency, given its fundamentals, and China's recovery. I think that any time the A$ gets some wind in its sails and heads higher it will be met with resistance and profit taking.

The Japanese yen continued to move in the opposite direction as most of the other currencies, and reached its weakest level VS the dollar since June 2010! The yen did touch 89 overnight, but has since gained back a bit, but remains offered. So, how far will this weakness go with the yen? Good question, Chuck! Well. no one knows for sure. but I think it depends on what happens to the dollar. if the dollar goes for a ride on the slippery slope and begins to lose value against the euro even more, it will be difficult for the yen to continue to weaken, for the crosses will catch up with it.

But, should the dollar rally, then yen could get back to the weakening, and it could take it easily past 90. and higher. (remember, yen is a European priced currency, which means the higher the price, the lower the value VS dollars) The new Japanese Gov't is all about yen weakness, folks. they want 2% inflation, and it looks like the Bank of Japan (BOJ) has signed on to that idea. So, look for more drive from the Japanese Gov't to weaken the yen.

In the tale of two currencies. (yen and renminbi), the Chinese renminbi/ yuan reached a 19-year high this week, and looks to continue to gain VS the dollar given the recovery in China. Remember though, at this point, the renminbi/ yuan is a controlled currency, so after reaching its 19-year high earlier this week, we've seen the currency weaken a bit. That's just the Chinese Gov't making sure that traders and investors don't begin to trade the renminbi /yuan as if it were on a One-Way Street. I think the renminbi/ yuan will get back to the small doses of appreciation soon.

China overtook Japan as the largest foreign holder of U.S. Treasuries last year. I have to wonder if that's a prize or not. Anyway. what I'm saying is that China has passed Japan in many ways in recent years, with the two exchanging places. China is on the way up, and Japan on the way down. Can you dig it? HA! I have no idea why that came out. but I must have had a 60's flashback!

Well.. the price of Gold soared by $20 yesterday, as the dollar was getting sold like tie-dye T-shirts at a Grateful Dead Concert. The shiny metal is giving back $5 of that move yesterday in the morning trading, as traders and investors take profits in the currencies and metals. I want to bring something to your attention regarding the U.S. Gold Holdings. there's a petition at the White House Internet site calling upon the U.S. Gov't to audit the U.S. Gold reserve - and to account for any surreptitious ownership claims to the gold. Really! I'm not kidding you! If 25,000 people electronically sign the petition, the White House is obliged to forward it to policy experts for review and to make a public statement about it.

Now, we all know that an "audit" isn't going to take place, but wouldn't you like to see the Gov't squirm around as they tell the public that an "audit" isn't necessary? I know I would pay to see that! Here's the link to the site:

Then There Was This. OK. have you all been following the story going around about how the President is thinking about using a law that was probably intended for use on something else, and implementing it now, to avert the debt ceiling and the threat of a Gov't shutdown? I'm talking about the $1 Trillion platinum coin that would be minted by the Gov't and deposited at the Fed Reserve. The White House Press Sec. didn't deny that this was happening, when asked yesterday, and that is leading many observers to believe that the President will indeed use this way to circumvent the debt ceiling.

I came across this response by Lawrence Williams in response to this news. "It would have to constitute the most gigantic fraud ever perpetuated by a government and probably make the U.S. dollar and the U.S. economy the laughing stock of the world. If anything, it would trigger a huge investment surge into gold and silver as all faith in government-created money would evaporate!

Firstly - why platinum? It is based on a legal technicality allowing the U.S. to mint platinum coins of any face value. However, given that $1 trillion dollars worth of platinum at current prices represents around 8 or 9 times the amount of platinum ever mined throughout history, a trillion dollar face value coin would have to bring any kind of money creation into even more disrepute than it already is."

Chuck again. let me repeat this. $1 Trillion dollars worth of platinum at current prices represents 8 or 9 times the amount of platinum EVER MINED THROUGHOUT HISTORY! So, if you issue/ mint a coin that's worth $1 Trillion in platinum, and there's not enough platinum to back it up, then you have created money out of thin air. How the dollar would survive something like this is beyond my gray matter's ability to reason.

To recap. A perfect storm was created for the currencies and metals yesterday, when ECB President Draghi talked upbeat about the Eurozone economy. his comments added to the news that Spain's bond auction was a very good one, and that China had printed a very strong exports data overnight. Gold soared $20, but has given back $5 this morning on profit taking in both the currencies and metals.

Currencies today 1/11/13. American Style: A$ $1.0560, kiwi .84, C$ $1.0165, euro 1.3255, sterling 1.6110, Swiss $1.0905, . European Style: rand 8.6855, krone 5.5435, SEK 6.5055, forint 223.75, zloty 3.09, koruna 19.3350, RUB 30.30, yen 88.90, sing 1.2255, HKD 7.7520, INR 54.75, China 6.2150, pesos 12.65, BRL 2.0355, Dollar Index 79.82, Oil $93.18, 10-year 1.88%, Silver $30.66, and Gold. $1,668.00 and it's Friday, so let's take a peek at the U.S. Debt Clock. Click here:

That's it for today. A Big Happy Birthday ( tomorrow) to my oldest son, Andrew. 31 years ago (tomorrow) we had 9 inches of snow fall on the day he was born. I remember taking darling daughter Dawn who was 2 ½ to the florist shop and letting her pick out a gift to take to her mom and new brother. She was so cute, and talked to the salesperson, about how proud she was to be a Big Sister. Funny how that seems to have happened last week, but I can't remember what I had for dinner last night! HA! So. Happy Birthday, Andrew! My beloved Missouri Tigers travel to Ole Miss to play basketball tomorrow night. their first SEC road game. And this is it for me, for the next week. I'll be gone, and like I said earlier in the week, Hopefully Chris and Mike will work out taking the conn on the Pfennig next week. Alright, now dig this baby. I thank you for reading the Pfennig. now go out and make this a Fantastico Friday!

Chuck Butler
EverBank World Markets

Posted 01-11-2013 11:10 AM by Chuck Butler
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