Things Continue To Improve In The Eurozone.
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In This Issue.

* Eurozone Banks with surprise repayment amount.

* Chuck tells Dow Jones yen to continue to slide.

* German IFO posts 3rd consecutive positive month.

* Fed is in unchartered water.

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

Things Continue To Improve In The Eurozone.

Good day. And a Happy Friday to one and all! It's not starting out to be a Fantastico Friday, but I suspect it will end up as one. We have our annual office get together tonight, which is usually a good time, so I've got that to look forward to! It should be a F.F. (Fantastico Friday) over in the Eurozone, (more in a minute) and I'll look for other items that could be having a F.F. today. All that and more, so sit back, grab your coffee, and let's go to the tape!

Well, front and center this morning, the euro is off to the races VS the dollar (1.3455) as the ECB announced this morning that Eurozone banks will repay 137 Billion euros of their LTRO loans (Long Term Refinancing Options). It was thought going into today, when the banks had to reveal what they would repay, that the total repayment would be around 84 Billion euros. So, the actual total blows the expectation out of the water, and once again provides the markets with proof that things continue to improve in the Eurozone.

I find this news to be very encouraging, and apparently the markets do to, as they have gone to marking up the euro to the tune of nearly 1-cent. Not that I'm running out to back up the truck to load up with euros, for the union or the currency is not out of the woods. Of course there are those that say you take risks when things look the bleakest, which would have been last year for the euro, so I probably missed the "bargain basement" opportunity anyway. UGH!

The euro also has received a boost from the latest Business Climate print as reported by the think tank IFO. German Business Climate, Current Assessment, and Expectations all increased this month from December, and marks the 3rd consecutive month of improvement, putting yet another feather in the euro's cap.

I received a call from a Dow Jones / Wall Street reporter yesterday, asking me my opinion of the Japanese yen, and did I think it would continue to weaken. I'm not sure the reporter was ready for my long-winded theory on why yen was taking a ride on the slippery slope. So, in case the reporter decided to leave that interview on the cutting room floor. I'll give you the Reader's Digest version of the interview.

I said that the yen should continue to weaken, given the Gov't mandate for a weaker yen to introduce inflation in the Japanese economy. I said that the only thing keeping yen from a free-fall was the fact that Japanese stocks are doing quite well right now, and the flows into that market, provides the yen with some love. But not enough to overcome the negativity that has been generated by the thought that Japan's HUGE Gov't debt is no longer thought to be something that would be self-financed by citizen savings.

OK. enough on yen. but. since that interview the yen has slipped further by a whole figure to 90.90. So, even if it never gets any weaker, I was correct in saying that it would get weaker from the level it was yesterday during the interview! HA!

Besides the euro rally, which drags the Swiss franc along for the ride, the rest of the currencies are flat to down this morning. And that has me scratching my balding head this morning. The dollar has this week alone, fought off the problems with and the eventual delaying the debt limit, the things that everyone is finding out about how clueless everyone was in 2007 & 8, and now the news that the Fed's balance sheet has pushed past $3 Trillion. and the report yesterday (thanks Scott!) that the Fed is now the proud owner (I say proud because why else would they keep buying if they weren't proud of the asset?) of $1,696,691,000,000 in Treasuries.

In fact the Fed's holdings of U.S. Treasuries has increased by 257% in the last 4 years, making the Fed the largest holder of U.S. Gov't debt. Hmmm. why isn't this news deep sixing the dollar? Doesn't this sound a bit incestuous? We own the majority of our own debt. Pfennig reader, Scott Pluschau, sends me stuff that he knows will cause me to go yell at the walls, and he has accomplished that once again!

This balance sheet at $3 Trillion, and the Treasury positions are really in unchartered waters folks. Yes, I know, Big Ben Bernanke says he knows what he's doing. But what if he doesn't? What happens if we find out, like we are finding out now 5 years later, that the we didn't have all the answers then or now? I have to tell you that if I were a betting man, and I'm not, that I would be on the side of the bet that says Big Ben Bernanke and the other Fed Heads don't have the answers, and they are shooting from the hip as we go along.

I guess the bet I do make on my take on all this is to own Gold, Silver, and currencies, just in case this all goes to hell in a hand basket. Hey, Chuck! Your F.F. suddenly went doom and gloom, come on, get out of that hole, and get back to having a F.F.!

Yesterday, I completely missed an opportunity to insert a song, when I was talking about the weak earnings report from Apple. One bad apple don't spoil the whole bunch girl. I don't care what they say, I don't care what you've heard! And so it was for the stocks yesterday. I don't normally give two hoots about what stocks do, but in this case, it's become a very good indicator of what bonds are going to do. as funds flow out of bonds into stocks during good times, and vice versa in bad times..

And the funds were flowing out of bonds yesterday. The 10-year Treasury yield rose from 1.81% in the morning to 1.90% by end of day. (remember, bond prices drop as the yields rises). But we've seen these moves in bonds before, only to find ourselves licking our wounds, as the Fed steps in and gets the yields back down. So, be careful here.

My friends over at Morgan Stanley send me a research paper from time-to-time on Risk Exposure. This is a good piece for it gives updates on the inflows to the Risk or Emerging Markets. Their latest report shows that inflows to these markets are outpacing the previous month, and maintain strong momentum.. Cool beans! This plays well with my broken record call that the Emerging Markets will thrive going forward, due to their ability to grow without being dragged down by debt burdens.

But, as I always say. be careful with Emerging Markets. they are very volatile, and can go the wrong-way in a hurry without warning. Countries like Russia, Mexico, Brazil and Columbia all continue to see strong inflows into their markets.

Gold (Silver and Platinum) found some terra firma this morning, and hopefully the NY traders don't upset the applecart when they arrive. I did see an article yesterday that quoted a Morgan Stanley report where they are telling people that Gold will rally this year and into 2014, as Fed policy makers will probably maintain asset purchases for two more years. They believe that the price of Gold will average $1,715 in the 1st QTR, $1,745 in the 2nd QTR, $1,800 in the 3rd QTR, and $1,830 by year end.

Well. at least that's a steady increase and not the lofty $2,000, $5,000 and beyond calls that we've seen! The Morgan Stanley report said it all, "we expect that very low nominal interest rates, an ongoing commitment to QE3, and a below-par recovery with attendant pressure on the dollar will still combine to encourage investment buying of Gold."

The U.S. data cupboard only has New Home Sales data today, so at least we don't have to be dragged down by weak or poor economic data and that will help us get going for our F.F.!

Then There Was This. I told you earlier this week about Central Bank buying of Gold, and told you remember to "follow the money". Well here's another Central Bank Gold story that was on Reuters. "The Russian central bank will continue to buy gold as it seeks to diversify its foreign reserves away from paper assets it views as risky, First Deputy Chairman Alexei Ulyukayev said today.

The Bank of Russia has built up the world's fourth-largest foreign reserves, worth $530 billion, by buying oil export dollars to keep the ruble competitive. The hoard includes two rainy-day budget funds that guard against fiscal shocks.

The bank has also been a bullion buyer and the share of gold in its reserves is approaching a medium-term target of 10 percent, raising questions over whether it would keep buying gold.

Chuck again. Long ago, I told you that it was my thought that Russia would follow China in the announcements of backing their respective currencies with Gold. this just puts air in my sails folks. it's like the "don't feed the bears" sign. they shouldn't put wind in my sails, it only causes me to be more obnoxious! -HA!

To recap. The euro is pushing the envelope this morning gaining nearly 1 full cent on the news that Eurozone banks will repay 134 Billion euros of the LTRO loans that the ECB made to them. it was thought that 84 Billion euros would be the figure, so the HUGE increase is another sign that things are improving in the Eurozone. The yen got back to its ride on the slippery slope after a two-day pause for the cause, and the Fed is in unchartered water folks.

Currencies today 1/25/13. American Style: A$ $1.0435, kiwi .8375, C$ .9950, euro 1.3455, sterling 1.5805, Swiss $1.0815, . European Style: rand 8.9965, krone 5.5145, SEK 6.4485, forint 221.10, zloty 3.1045, koruna 18.9980, RUB 30.05, yen 90.95, sing 1.2305, HKD 7.7540, INR 53.68, China 6.2216, pesos 12.64, BRL 2.0290, Dollar Index 79.75, Oil $96.37, 10-year 1.90%, Silver $31.51, and Gold. $1,667.05. and our Friday tradition of taking a peek at the U.S. Debt Clock is right here:

That's it for today. A nice shutout win for our Blues last night. I got to see about ½ of it. Back to having problems with my leg. the two month reprieve was nice while it lasted! UGH! Had to stop for gas this morning. $3.55 a gallon is what I paid. So, when does that $40 Oil begin to show up? It'll just be Alex and me for a few days at the house, which means lots of pizza, cookies, and snacks! (he eats better than that, just kidding there) Tomorrow is one of my younger sister's birthday. Happy Birthday Joanie. Joanie lives in the Houston area, so I only get to see her once or twice a year. And with that. Thanks for reading the Pfennig. now let's go out and make this a Fantastico Friday!

Chuck Butler
EverBank World Markets

Posted 01-25-2013 11:02 AM by Chuck Butler
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