Illinois Falls To The Bottom.
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In This Issue.

* Currencies & metals back off the rally pedal.

* Euro gets the most out of relative calm.

* Swiss franc to weaken further?.

* FOMC meeting this week.

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

Illinois Falls To The Bottom.

Good day. And a Marvelous Monday to you! Well, the weekend went faster than a runaway train, as I was sick Friday night and Saturday, but rebounded yesterday, only to just hang out in my basement all day. I need a "do-over" for the weekend! I think if enough of you send emails to the Big Boss, Frank Trotter, he might agree to give me a "do-over". - HAHAHAHHAHA! Please do not email him, I was just joshing around!

Well.. the currency rally that was going on Friday morning, has backed off the gas pedal, and dollars and yen are the currencies du-jour this morning. Those two currencies deserve each other! If they were old men, they could sit around and instead of comparing aches and pains, they could compare their respective large debts!

In Japan, ex-Economic Minister, Takenaka, was out doing his best to verbally weaken the yen, by saying he thought that yen had further room to fall, citing a figure of 95. He went on to say, "this correction has just started, it's not fair to say the yen has depreciated too much." So, the verbal assault on yen by Japanese leaders continues, folks. they had better stop and remember that you need to be careful with what you wish for!

It's not just Japanese leaders that are verbally assaulting their respective currencies. Swiss leaders were doing the same this past weekend, saying that "Euphoria is misplaced, and more depreciation is needed". Here's what the Swiss leaders are looking at when they say that kind of stuff. the Swiss franc has lost 3.2% in value VS the euro this year. However, the franc is still 9.1% stronger than the 5-year average and 35% stronger than it was on October 2007. So, they want to get back the Good Times. They may want to contact J.J. Evans (Jimmy Walker) for some of his "dy-no-mite" talk, to get them going!

If the markets aren't in the mood to take francs in the direction that strongly, then there's no amount of verbal assault the Swiss leaders can spit out to get the markets to change their minds. Now, if the Swiss National Bank (SNB) wanted to kick in with some currency intervention, which I suspect they are already doing, but this time get some co-ordination from other countries, then the SNB might have something. otherwise, they need to accept what the markets believe is fair value for their currency.

Hey! Today is Chris Gaffney's birthday! He reminded me of that last week. Our little Christine's birthday is Wednesday, so those two always believe that we should have a grand parade in their honor for their "birthday week". Oh well. no parade, buddy. just Happy Birthday! I remember when Chris turned 30, and I decorated his desk with black crepe paper and "over the hill" signs. That was back at Mark Twain Bank, so that might tell you how far past that mark he has gone! Actually Chris is 10 years younger than me. So. there you go!

Don't know why I stopped the "flow" I was in on the currencies to talk about Chris' birthday, but it happened. I guess I thought about it when I was going to talk about this being the last week of January, which is fine with me! I'm not a fan of January. But an end to January, means the Jobs Jamboree is at the end of this week. I can tell you right now, that I'm leaning toward a weaker than expected number. of course, my numbers are always pre-BLS adjustments! But, before we get to Friday, we'll see a truck-load of economic data here in the U.S. So, it could very well be a very choppy week in the currencies and metals.

The Fed's FOMC meeting will take place on Wednesday. No two-day meeting this time around, so there's no time left for getting the board games out. Remember the last meeting sent the currencies and Treasuries into a tail-spin, when they mentioned "an end for QE in 2013". So, they could hold the key to another tail-spin this week. But I doubt it. I think they saw what they did after the last meeting, and they can't afford to have Treasury yields pushing past 2%...

Early last week, Gold was pushing the envelope toward $1,700. This week it starts out trying to get back to $1,650. What happened? Well. I can't positively and assuredly say, but if I were to take a shot here, I would say that the price manipulators saw Gold heading toward $1,700 and decided that was enough. But then, I have no proof, other than to point out the trading patterns, and the short positions, which increased by 10,837 contracts last week.

Did you see that the plaintiffs in the silver market rigging class-action lawsuit against JP Morgan Chase tentatively dismissed a month ago by Judge Robert P. Patterson Jr. in U.S. District Court in New York this week re-filed their complaint with what they hope will be additional specifics sufficient to persuade the judge to reinstate the suit? Well. it happened last Friday. So, I'll have to keep my eye on this story going forward.

OK. back to the currencies. The Reserve Bank of New Zealand (RBNZ) meets this Wednesday night (for us) and I really want to hear the RBNZ Gov. Wheeler back off his talk that the "sky is falling on global growth", and therefore back off his downward pressure for the kiwi. I know that's all wishful thinking on my part, but why not? Things around the world have definitely gotten better since their last meeting, where they pointed out the problems as to the reason they couldn't raise interest rates.

The euro really has pushed the envelope to higher levels since we turned the calendar to 2013. I think that most of this move higher was in direct relation to the relative calm that has been cast over the Eurozone. But if you stop to think about this move higher for the euro, don't you think that most of the good that could come from that relative calm has been priced in? I do. Now that doesn't mean the euro's rise is now capped. It just means that I think the single unit could find moving higher from here to be a tough row to hoe.

On Friday, I was doing some research and came across a story that caught my eye, in that, it talked about the Russian Central Bank (RCB) intervening to stop the gains of the ruble. On Friday morning, I reported the ruble to have reached a strong level of: 30.05. According to the story, there was a line of resistance at 30.20, so the ruble soared right past that line. (ruble is a European priced currency, so the lower the price goes, the greater the value VS dollars) A trader in Russia, seemed to believe that 30 is the next line of resistance, and that the RCB would intervene to keep the ruble from falling below 30..

I've said since the days we put together the BRIC MarketSafe CD almost 4 years ago, that Russian rubles are "an oil play". So, it shows to go you that with Oil putting in a very strong week last week, that rubles would be gaining lock-step. So, if you track rubles, you'll want to track the price of Oil. Should the price of Oil continue to rise closer to $100, I would think the RCB would have to show their hand.

This morning, though, with the dollar and yen back at the conn, rubles have backed off the lofty figures from Friday. Along with the price of Oil, and Gold. two anti-dollar assets. I think that right now, this morning, and leading up to Wednesday's FOMC, we'll continue to see dollars with a bias to buy. too many traders don't want to get caught short dollars ahead of the FOMC meeting. But if the FOMC meeting goes as I suspect it will, there will be no follow-on to the statement at the last meeting about an end of QE, and the markets will quickly unwind those dollar positions. But that's Wednesday. I'll be heading to Orlando on Wednesday. I guess Chris and Mike will let you know what's happening.

The Canadian dollar / loonie continues to weaken from the dovish sounding Bank of Canada (BOC) statement last week. the loonie has lost over 1-cent since the meeting and looks to lose even more. That is until calmer heads stand up to the sellers!

Did you see that the ratings agency, Fitch, said that the "debt limit suspension removes the near-term risk to the U.S. AAA credit rating"? What? Oh, let's not deal with the debt limit right now, even though we are required to so, and that will get the Ratings Agency to back off their pressure on us to cut debt. That makes no sense whatsoever! If anything, Fitch should be holding the U.S. leaders with their feet to the fire, until they cut debt. That is, if that's really what Fitch wants. I know that it's what I want!

Speaking of credit ratings agencies. Did you see that Illinois, one of our neighboring states, had their credit rating fall to the bottom of all 50 states according to S&P? Illinois' already disastrous financial situation worsened with this credit rating downgrade. The downgrade is just the latest warning from the credit agencies and New York bond houses about the state's ongoing credit deterioration. It means taxpayers will likely pay a higher interest rate when the state issues bonds, or borrows money, for bit items such as construction projects.

Now. who remembers me harping about the problems in Illinois and Michigan, New York, Arizona and Florida, when the markets were making such a big deal and rightly so, about Greece? But, here in the U.S. it's always easier for our leaders to point at other people's problems to remove the focus from our own problems.

I'll tell you this right here, right now. Illinois is headed toward a fiscal disaster, because of unfunded liabilities. Sound familiar? Illinois has $96 Billion in unfunded liabilities. the U.S. as a whole currently has $122 Trillion in unfunded liabilities, and will be $150 Trillion in 2017. for those of you keeping score at home that's $150,000,000,000,000

Then There Was This. colleague Aaron Stevenson, sent me this story on Friday. that had appeared in the U.S. Telegraph regarding Bank of America's call on bonds. Here's a snippet.

"The US lender said investors face a treacherous moment as central banks start fretting about inflation and shift gears, threatening a surge in bond yields.

This happened in 1994 under Federal Reserve chief Alan Greenspan when yields on US 30-year Treasuries jumped 240 basis points over a nine-month span, setting off a "savage reversal of fortune in leveraged areas of fixed income markets".

A similar shock this year is "likely" if the U.S. economy continues to gather strength. "The moment we hear the first rhetorical talk of exit strategies by central banks this could turn," said chief investment strategist, Michael Hartnett. There was already a whiff of this in the most recent Fed minutes."

Chuck again. Well. that's all fine and good, but what about the Fed's buying to keep rates low? Until they stop that, a significant rise in Treasury yields isn't going to happen. This is the thing I completely missed when I first talked about a Treasury Bubble and it popping. We still have a Treasury Bubble, and it's still floating about the room in search of a pin. but right now, the Fed's hiding the pins.

To recap. The currency rally came to an end on Friday and in the overnight markets last night. This week is chock-full-o-data and Central Bank meetings which are the ingredients to a choppy week in the currencies and metals. Dollars and yen are on the rise, which is just about perfect that those two are trading together! And Illinois suffers a downgrade, putting them at the bottom of 50 states. Uh-Oh!

Currencies today 1/28/2013. American Style: A$ 1.0395, kiwi .8295, C$ .9905, euro 1.3440, sterling 1.5730, Swiss $1.0780, . European Style: rand 8.9975, krone 5.5420, SEK 6.4480, forint 222.05, zloty 3.1215, koruna 19.1050, RUB 30.13, yen 80.85, sing 1.2385, HKD 7.7575, INR 53.91, China 6.2240, pesos 12.77, BRL 2.0355, Dollar Index 79.88, Oil $95.84, 10-year 1.93%, Silver $30.14, and Gold. $1,656.60

That's it for today. Hey! Did I mention that it was Chris Gaffney's birthday? Friday night was our annual office get together. This year we joined our mortgage office here in St. Louis. And the night was like a night at teen town. The EverBank World Markets & Operations people all huddled together, while the mortgage people all huddled together. no mixed groups. it was pretty funny looking to me! But then I have a "different sense of humor". We were hit with a coating of freezing rain this past weekend, but it melted quickly. The Super Bowl, or Harbowl is this Sunday, I'll get back into town in time to watch it. I don't like either team, but the 49'ers are in the Rams' division, so I guess I'll have to go with them! It is pretty special that two brothers will be coaching against each other. Their mom and dad must be very proud. And with that. Oh! Did I mention it was Chris Gaffney's birthday? Well Happy Birthday, buddy! I hope you have a Marvelous Monday, that happens to be Chris Gaffney's birthday! HA!

Chuck Butler
EverBank World Markets

Posted 01-28-2013 11:05 AM by Chuck Butler
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