SNB Cut Rates 100 BPS!
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In This Issue..

* Trading Theme returns...

* Automakers' bailout vote today...

* Not using all your arrows...

* Housing Starts go back to 1959!

And Now... Today's Pfennig!

SNB Cut Rates 100 BPS!

Good day... And a Tub Thumpin' Thursday to you! It's a short week for me, so this IS a Tub Thumpin' Thursday! I head to Florida tomorrow, and I'm ready! After last week, and the cold that's set in here, I'm ready! Too bad I'll be working about 1/2 the time! But, I'm not complainin'!

OK... Whew! What an awful day yesterday for the currencies... In the morning, they ere in rally mode with the euro gaining ground to well within the 1.27 handle. But then the Trading Theme set in, and those gains were wiped out. The Trading Theme was set off by the awful Housing data, which reminded everyone of the deep, dark , dangerous days ahead... I bought some euros, and watched them rise, and went off to do something else... When I returned, they had fallen... UGH! The Japanese yen, however, rallied, as is the case with the Trading Theme... Risk trades get unwound, which benefits dollars, and yen. I've explained all this before, so I won't get into it again, but there's someone that has gone into the problems (credit markets and the Fed and Treasury's response to the crisis), and does a great job of telling it like it is... So, instead of hearing from me, ranting and cursing the "leaders" I'll let someone else explain it to you... This is a fellow named Ted Cook, that Ty Keough sent my way...

"One hardly knows where to begin. America has currently embraced the monetary policies of a banana republic. The Argentine and Zimbabwe models cannot be far behind. For years (35 to be exact) we have warned about the consequences of unbridled credit expansion. We argued that artificially low interest rates would lead to catastrophe. Now the first installment of this crisis has been visited upon us. Our policymakers have greeted this dilemma with even more ruinous money and credit policies that compound the problem. We've had the earthquake. The Tsunami is yet to come.

The monetary authorities in Washington, who are supposedly the brightest among us, have adopted a short-term strategy resplendent with economic error. As usual, the politicians are clueless. Somehow the idea has gained ground that recklessly expanding money and credit (inflating) will cure our economic ills without repercussions. Nothing could be further from the truth. This is currency debasement on a grand scale."

OK... Back to me... I see where Iceland is getting $2.1 Billion from the IMF, and $2.5 Billion from the Nordic Countries of Finland, Sweden, Norway, and Denmark to help resurrect the Icelandic economy. Seems like it's a case of too little too late to me, but maybe this can unlock the markets there a bit. For those of you keeping score at home, we received a price of 182.10 on our Icelandic currency this week. Now... I know there are people out there that don't believe that we receive a price like this when the Central Bank posts a daily figure of around 139... But let me tell you how this all works... I think the easiest way to explain this is to look at the Wall Street Journal, or most newspapers' business section, and you'll see the Fed Reserve rates for currencies that day. Since currencies only really trade at the level that's posted in the paper for a mili-second, it's merely used as a reference. It's not an indication where trades are being bought and sold.

Then there was the Housing data yesterday... October Housing Starts fell 4.5%, and Building Permits fell 12%! OUCH! That's just awful data! The Housing Starts fell to an annual rate of 791,000, which is the lowest since records began in 1959! That's 1959 folks! I hadn't even started kindergarten yet! We hadn't even launched Alan Shepard into space yet! Oh, the Soviets were way ahead of us at that time, only to be caught and passed later... But I digress, with this space exploration talk!

I don't mean to try to get everyone's attention away from the awful Housing data, like the media would do... I think of the cable news people doing this story, something like this: "Today, we saw the October Housing Starts fall 4.5%, and how about Paris Hilton breaking up with her boyfriend yesterday?"

OK, I'm back now, the research team over at JP Morgan sent out a note to clients yesterday, telling them that they believe the Fed will cut interest rates to zero by the next two meetings, Dec. 16, and Jan 28, and leave them there for the rest of 2009. Recall, that I wrote about how I believed the Fed was going to cut rates to zero about a month ago? I said then that the Fed is thinking that they can be "Saved by Zero"... Well... It's nice to see the BIG research teams jump on my bandwagon!

I guess, the Nestea Plunge in the Consumer Price Index (CPI) yesterday convinced them to make that call... October CPI took the biggest Plunge in 61 years by falling 1% in the month!

Falling asset prices... Falling inflation (so they say)... Falling Home prices... And Falling Job Creation... This is getting pretty ugly folks... And here's Jimmy Buffett (a reader reminded me of this!) I don't know ---- I don't know --- I don't know where I'm gonna go when the volcano blows. Mr. Utley! (you can hear those steel drums playing in your head now can't you?)

I ran some numbers last week for our monthly newsletter to clients, called the Review & Focus, (shameless plug) because I wanted to see if our age-old portfolio theory thought about how diversifying your investment portfolio reduces the overall risk of your portfolio, was holding true, given the currency sell of since July... Lo and Behold, it's tru, it's tru, I did see a putty tat! Yes, with the S&P 500 off more than 39% in the past year, a $100,000 investment in the S&P would not have done you very good... But by allocated 20% to Gold, and 20% to 3 currencies, euros, Swiss, and yen, and you can even substitute Aussie to prove the point even more... You are left with far more money in your portfolio, than if you did not diversify.

So... Yes, the currencies have fallen on difficult times since July, but they are still doing their work as a risk reducing machine for investment portfolios... Interesting... Those are the facts, Jack!

Today... The Data Cupboard will yield, the Weekly Initial Jobless Claims, which last week jumped above 500K... I would look for this to remain above 500K... And that my friends, is not a good thing. We'll also see the Philly Fed Index (manufacturing), and one of my fave data pieces, Leading Indicators... If everyone would have paid attention to the Leading Indicators in the last year, they were telling us that something was wrong... And I believe they'll still indicate something still is going wrong, as they are forecast to post a negative -.6% print for October...

The Data Cupboard will be emptied after today, with nothing to report tomorrow.

In the Eurozone... ECB member Nowotny made a clever comment that has helped the euro a bit this morning... Nowotny was talking about interest rates cuts and said, "it makes perfect sense not to use all your firepower at once." Like I always say about not using all the arrows in your quiver! Yes, this is what I was referring to yesterday when I was talking to a long time customer... I said that the ECB would be more pragmatic when it came to their rate cuts... Yes, they participated in the coordinated round of rate cuts, and they cut rates 50 BPS at the last meeting... But... I believe they will pause for the cause, and take a look at what their two previous rate cuts did to the economic landscape before going off and cutting rates like there's no tomorrow.

Speaking of rate cuts... The Swiss National Bank (SNB) decided to take the plunge this morning and take out their yield that's offered... The SNB cut rates 100 BPS! That's crazy man! Crazy!

Speaking of crazy... The automakers were on Capitol Hill yesterday pleading for some bailout money... I understand that the proceedings were a bit heated at times, as well they should be! I think there will be a vote today on whether the Big 3 get some additional bailout money... You might recall that they already received $25 Billion to put toward alternative fuel vehicles... Yeah, I bet it went there, right? Oh, that's right, I see a whole line of alternative fuel cars rolling off the lines right now! NOT! If I were in charge of the purse strings here, I don't think I would give them a dime, until they demonstrated that they will change...

And... Finally, before I head to the Big Finish... Did you happen to see or hear or read any of the conversation between Sen. Ron Paul, and Big Ben Bernanke? Oh, this is classic stuff! Here's a link to a site that has the video of the back and forth between these two... Simply classic!

Currencies today 11/20/08: A$ .6305, kiwi .54, C$ .7955, euro 1.2545, sterling 1.4865, Swiss .8210, ISK 182.10, rand 10.5675, krone 7.0740, SEK 8.15, forint 215.15, zloty 3.0740, koruna 20.43, yen 95.70, baht 35.15, sing 1.5290, HKD 7.75, INR 50.15, China 6.8342, pesos 13.40, BRL 2.3890, dollar index 87.62, Oil $52.15, Silver $9.39, and Gold... $745.50

That's it for today... And that's it for me till next Tuesday. Chris will have the conn on the Pfennig till then. Hey! I paid (technically below $2) $2 for premium gas last night! WOW! It's a good thing the oil price plunged when it did, given the state of the economy right now, eh? Still no improvement in the eye... My little buddy, Alex, and I were on our own last night, so we opted to go out for dinner after his guitar lesson! Tomorrow night is the office holiday party... I don't know who set this date, but to me, it's like putting up your Christmas decorations and lights before Thanksgiving! Just a little early, eh? Oh well, I'm not complaining, just observing... I'll be gone for it anyway... OK, Mike's here, better hit the send button! I hope your Thursday is Tub Thumpin'!

Chuck Butler


EverBank World Markets



Posted 11-20-2008 9:01 AM by Chuck Butler