Draggin' The Line

Good day…and a Happy Friday to one and all! Your Pfennig writer is really draggin’ the line this morning, as the week’s activities finally caught up with me, and I hit “the wall” when the wake up call came through this morning. So, we’re going to have early dismissal today. This will be short-n-sweet…I promise!

I did get to spend some valuable time with my friends Mary Anne and Pamela Aden (the Aden sisters) who are always just a delight to be around! I also got to speak with John Mauldin, Bill Bonner and a writer that is interested in writing a book about the Pfennig. A very long day, but productive from my end!

The data yesterday left us wanting for more because it didn’t satisfy our needs to drive the dollar lower. First of all, the government reports through CPI that we’re not experiencing any additional inflation in our lives (HAHAHAHAHA!), and that the annualized number is only 2.8%. Again, HAHAHAHAHA! I’ve beaten this report up enough, so let’s move one. The thing that is strange here is that the dollar got all kinds of support as inflation was rising per this report, and now that it looks like it is backing off, the dollar isn’t getting sold…hmmmm.

The Net Foreign Securities Purchased (NFSP) yesterday backed off last month’s rogue number and came in right at $65.1 billion. There was a general shift out of “safe” assets such as T-Notes and Bonds, and Agencies into corporate debt. Recall, yesterday when I said that I’m seeing investors take on more risk? Well, it has carried over to the foreign investor too!

The drop in net portfolio inflows into the lower end of the $65-75 billion per month range, required to fund both the U.S. Current Account deficit and net Foreign Direct Investment outflows, was overwhelmingly due to net sales of T-Notes. The only asset class bucking the trend was an increase in net foreign demand for corporate bonds.  Increases in net outflow from the United States into foreign bonds and a switch into net purchases of foreign stocks also supports the global trend towards investing in riskier asset classes, and increased investment by U.S. investors overseas.

Oh, and guess what country led the charge with regards to bond purchases? That pesky bunch known as Caribbean Hedge Funds. A lot of people still think that this Caribbean Hedge Fund is just window dressing for the Fed Reserve. I’m still not on board with that thought…but they can make a good argument!

In the end though, this data didn’t shake any coconuts off the tree as far as the markets are concerned. They just don’t seem to get as rattled as I do about this stuff! But one day…one of those coconuts is going to boink them on the head, and they will begin to worry. One day…

Industrial Production and Capacity Utilization came in right about where they were forecast so…no movement there either.

There’s no real data today, so it looks as though we will end the week with the currencies softer than they were when we started the week. UGH! I’ve listened to few speakers down here in New Orleans, and I have to tell you that, for the most part, they believe that the United States will experience either a “significant slowdown” or recession in 2007. I agree, and have talked about that here several times. The Treasury yield curve also tells us that we should experience a recession, and there’s a ton of other data that indicates this. It’s blatantly apparent to little old me…why isn’t it blatantly apparent to traders and investors? Why do they continue to buy dollars, with this information looming in the background? If you see rain clouds moving in, you usually get up and go inside, right?

We are beginning a new set of MarketSafe CD’s for December that will close out our offerings of the Gold and Resource CD’s. We hope to have something brand spanking new soon! However, every month we receive applications a week after the funding period for the CD’s has closed. In the past we simply held them for the next month’s funding…but this month we will not be able to do that. So, if you’re thinking that you want one of these CD’s, now is the time! So, like Disney when they bring an old movie out of the vault…”For a Limited time Only”!

Currencies today: A$ .7665, kiwi .6630, C$ .8760, euro 1.2795, sterling 1.8890, Swiss .8015, ISK 69.83, rand 7.28, krone 6.47, SEK 7.0880, forint 201.50, zloty 2.97, koruna 21.91, yen 118.20, baht 36.60, sing 1.5580, HKD 7.7860, INR 44.93, China 7.8718, pesos 10.90, no dollar index today, Silver $12.82, and Gold… $618.80

That’s it for today…I close out my visit to the Big Easy today, and head home. My little buddy, Alex and I will be “batching” it this weekend, as my beautiful bride heads out of town for the weekend. Sounds like tons of pizza, cheeseburgers and cold beverages are on tap at my house this weekend! YAHOO! Next week is Thanksgiving, if you can believe that! It sure got here in a hurry, eh? Oh well, if you’re traveling next week, please be careful! Have a great Friday and weekend!

Chuck Butler
November 17, 2006