A Pfennig For Your Thoughts

In This Issue....

* A Huge Friday Sell off!
* U.S. Retail Sales are strong...
* Testing the risk waters again...
* Norges Bank & Riksbank meet this week...

Abu Dhabi Provides $10 Billion Bailout...

Good day... And a Marvelous Monday to you! Friday turned out to be Fantastico, as I had hope for, and the weekend was for resting, as I was on my feed too much Friday night. It was NOT a Fantastico Friday for the non-dollar currencies, though... I'll get to that in a minute... First though, I want to crow a bit on the Dubai debt problems...

It was announced this morning that Dubai's government received $10 Billion in financing from Abu Dhabi... Hmmm... You know, I read somewhere a couple of weeks ago, when this debt /loan repayment problem was announced, that in the end, the Abu Dhabi government would step in to bail out Dubai, for the people running the two governments are blood related, and even though there had been shots fired between the two, blood would run thick here... And voila that's exactly what happened!

In fact, at the time, I tried to explain that California, the world's 8th largest GDP, had bigger debt problems then Dubai, but the media decided to focus on Dubai, and not California!

So... All that selling of risk assets since the Dubai announcement on Thanksgiving, was unwarranted... The selling of the dollar on the California, New York, Illinois, and other states' problems did not happen...

So, the risk assets, and Gold are edging higher this morning, sticking their toes back into the risk waters to see if it's OK to get back in the water. I don't know about that, there could be some Risk Aversion sharks circling just beyond the shallow waters... This Risk Aversion has held on longer than usual this time... So be careful out there... However, if this is the thing that sends the Risk Aversion sharks back out to sea, then we could be seeing some very inviting levels of the currencies and Gold to get back in, or dollar cost average by buying more at these cheaper levels...

The cheaper levels were being generated all week, but culminated in a rout on the non-dollar currencies and Gold on Friday, after some U.S. data led traders to believe that the Fed will be raising interest rates sooner than they have been leading us on to believe...

U.S. Retail Sales rose 1.3% in November, nearly double the 0.7% increase Wall Street had predicted. (I didn't see .7%, I saw a forecast of 1.4%) And of course the media did not report that October sales were revised down to a 1.1% increase from a previously estimated 1.4% increase. But don't let that downward revision get in the way of a party to celebrate a 1.3% increase in Retail Sales! And that's exactly what happened!

I saw a quote this weekend, while reading and researching, check this out, as I couldn't agree with this more...

The dollar may weaken after an initial rally following any sell-off of risk assets, according to HSBC Holdings Plc.
While the initial reaction to a sell-off in risk assets would be a higher dollar, this, in our view, would only prove to be short-lived, a team including David Bloom in London wrote in a report received today. The longer-term and bigger move would be an acceleration of the dollar's recent decline.

And further reading led me to one of my all-time fave economists, Stephen Roach... I had not seen anything from Stephen Roach in a long time, but this quote really caught my eye... Here's Stephen...

The Federal Reserve may cause another crisis by botching the withdrawal of liquidity from the U.S. economy, Morgan Stanley Asia Chairman Stephen Roach said.
The Fed is the weak link among central banks and may fail to tighten monetary policy in time to stop asset bubbles from forming, Roach said at a conference in Berlin today. The Fed helped trigger the boom and then bust of the subprime mortgage market by being quick to slash, slow to normalize interest rates, he said.

He went on to say, They need to be very early in executing their exit strategies, Roach, a former Fed economist, told Bloomberg Television. I take Mr. Bernanke at his word that he's looking for an extended period of monetary accommodation, which, quite frankly, I find very worrisome in assessing the prospects of a next bubble and the next crisis.

The traditional view of central bankers that asset bubbles are hard to spot and deflate with rates is ludicrous, he said.

See why I've always held Stephen Roach high on my Hit Parade of economists? He tells it straight, and doesn't pull any punches. These are all the things I've tried to explain to you about the Fed and their claim that they will be able to remove the stimulus without harming the economy... That, like their claim that asset bubbles are hard to spot and deflate with rates is very Ludicrous!

OK... So that's what's happening here... And we touched on the Dubai thing, so let's see what's going on in the rest of the world, shall we?

Well, first off, we have Central Bank meetings in Norway and Sweden this week (Wednesday)... The markets expect that the Norges Bank (Norway) and the Riksbank (Sweden) will keep rates unchanged as we head into the end of the year. However, I'm still keeping a light on for the Norges Bank to raise rates 25 BPS (1/4%)...

In Japan, the Japanese Tankan report, which is a measure of the economy's pulse, came in stronger than forecast. This report has done a lot for the return of the risk takers overnight, along with the Dubai story...

And In Australia... The Reserve Bank of Australia (RBA) will release their last meeting minutes this week, which the markets will read through quickly to see if there was any mention of halting rate hikes... I don't think they'll find that, and the A$ will be allowed to get back on the rally tracks...

In Brazil... There are reports there that this season's Christmas shopping will far exceed last year's numbers by 9.5%! WOW! Recall that last week I wrote about Brazil and talked about how I believed the Central Bank there would fail in their attempt to keep the real weaker than it currently trades? Well... There's a guy named Jerome Booth who writes for the Ashmore Group PLC, and he agrees with me, and even goes further to say that he believes the Brazilian real will reach a level of 1.50 VS the dollar in 2010!

Mr. Booth said that, Emerging-market countries including Brazil, China and India will attract more investment because their banking systems are healthier than those of the U.S. and the European Union, according to Booth.
The perception of risk needs changing radically. The investor that is thinking of maybe putting 5 percent in emerging markets needs to rethink and realize that being 95 percent in developed markets is very risky.
Currencies in Asia and Latin America will face a lot of upward appreciation pressure.

Booth also sees, like I do, Brazilian rates going up by 200 BPS (2%) in 2010, which he believes will help fuel this rise to 1.50 from current levels of around 1.75... (remember, real is a European Style priced currency, so the lower it's conversion price to the dollar, the more value the holder receives... A move from 1.75 to 1.50 VS the dollar would be a gain of 14%)

It will be interesting to see what the U.S. traders think of the Dubai debt / loan repayment problem going away... The were the big pushers of the Risk Aversion, and every time for the past two weeks that the overnight markets moved the non-dollar currencies and Gold higher, the U.S. traders would sell them off...

Then there was this... Beijing Automotive reached a tentative deal to acquire certain assets of General Motor's Saab unit, including intellectual property for two sedans and equipment to produce those cars, according to a person with direct knowledge of the agreement.

The deal, sealed over the weekend in Sweden, will enable Beijing Auto, one of China's main state-owned auto makers, to integrate the Saab technology into its own vehicles.

And... Once again extend China's tentacles a little further into everyone's world...

To recap... The Dubai debt / loan repayment problem has been satisfied, just like I said it would be, by the Abu Dhabi government. The Japanese Tankan was stronger than forecast, and these two items have the risk takers checking the waters once again. Stephen Roach makes an appearance in the Pfennig for the first time in a month of Sundays, and are you ready for an Emerging Markets rally?

OH... I almost forgot to mention this... Nothing like calling a bottom for Gold on Friday, and then see it drop $10! UGH! Oh well, I thought Gold looked like it had consolidated and was forming a new base from which to rise from... But, NOOOOOOOOOOOOOO! So, see! My beautiful bride always claims that I don't claim to be wrong... But, here you go dear... I was wrong about Gold forming a bottom on Friday! Maybe I was just a day early? For Gold, is up $5 this morning!

Currencies today 12/14/09: American Style: A$ .91, kiwi .7240, C$ .9390, euro 1.4635, sterling 1.6225, Swiss .9675, European Style: rand 7.4815, krone 5.79, SEK 7.1220, forint 186.70, zloty 2.8350, koruna 17.5770, RUB 30.10, yen 88.50, sing 1.3915, HKD 7.75, INR 46.70, China 6.8282, pesos 12.88, BRL 1.75, dollar index 76.47, Oil $69.69, 10-year 3.52%, Silver $17.20, and Gold.... $1,118.75

That's it for today... Well... I believe a grand time was had by one and all at the office get together Friday Night... Thanks to Danielle, for organizing that... I paid dearly for all the standing around though... UGH! Three days this week, and then I start my winter vacation! YAHOO! I'll miss Jennifer and Ty's birthdays while I'm gone, so an early call out for a Happy Birthday to them now... My beautiful bride celebrates her birthday (although she says she doesn't celebrate birthdays any longer) the day after Christmas... Little Delaney Grace stayed all night with us Saturday night, we watched Christmas movies, and she danced and sang for us. Our Rams are a sorry bunch, losing again yesterday and pushing their record to 1-12... UGH! OK... Time to get going, I've got a lot to do this week before taking off on vacation! I hope your Monday is Marvelous!