In This Issue   Currencies inch higher day by

first_imgIn This Issue. *  Currencies inch higher day by day. *  Bullard talks of QE benefits. *  Chinese mixed data is still good. *  Fed bulks up on cornering bond market. And, Now, Today’s Pfennig For Your Thoughts! China Hoards More Gold Than We’re Told. Good Day!  And a Tom Terrific Tuesday to you! We were supposed to have more snow on the ground this morning, but that didn’t materialize. Brother, it’s cold out though! Much colder than the norm for this time of year. As long time readers are well aware of, I’m no fan of cold weather, and am always repeating the Jimmy Buffett lyrics that I’ve gotta go where it’s warm!   This past week, there haven’t been a whole lot of choices here in the U.S. as to where to go where it was warm, so we’ll all in this together, eh? Yesterday was an awfully long day for me, and for the dollar apparently! The dollar, as I mentioned yesterday morning, looked fatigued all day, as the currencies, even the likes of dollars from Australia and Canada found some terra firma. The trading ranges aren’t getting out of whack or anything, these moves are small, but that’s how large moves begin. With slow moves that seem to take for-ever for them to add up to anything significant, but then a couple months down the road, we look back and see that the small moves have added up to something worth talking about a cocktail parties. The Tapering Question remains a roadblock to currency gains getting moving with any authority. The Fed Heads’ FOMC Meeting doesn’t take place until next week 12/18, but yesterday we had a Fed Head talking about Tapering, so let’s see what he had to say, and maybe we can get a glimpse of what will be the end result of next week’s meeting. Well, Fed Head, and St. Louis Fed President, James Bullard, spoke yesterday here in St. Louis.  I remember two years ago when I heard him speak, and then they opened the floor up to questions, and there was me, not able to talk out loud from the Radiation I was receiving on my jaw.  Man I was loaded for bear, and had to sit there, with the gel in my mouth in hopes of soothing it!   Any way. Fed Head Bullard was trying to be very emphatic with his choice of words yesterday, saying that The “improvement in the Labor Market since bond buying began is “most powerful part” of case for Tapering.” Ahem, again this time I would be front and center to ask him a question about that statement, had I been there, so I’ll ask it in the Pfennig, and hopefully someone at the NSA will forward it to him! (just having some fun, no need to get all uptight!) Ahem. Hello? Am I on? Hello? Yes, hello, long time listener, first time caller. I want to know what proof he has that Quantitative Easing has had anything to do with the hiring that’s gone on, or, could it just be a case of a coinquidink? That the nascent hiring would have happened with or without QE?  And then a follow up question, please. If QE is responsible for the hiring as you propose, then what could happen when you take away the punch bowl?   Thank you, I’ll hang up and listen to your answers. Well, I came out of my office yesterday, where I was hunkered down working on stuff, to look at the currencies and Gold, after Bullard spoke, thinking that for sure, the markets would panic at his comments and send the weak rallies circling the bowl. But, that was not to be! In fact, the currencies and Gold actually looked healthier after he spoke. So. maybe, just maybe, because you never know, but maybe the markets have come to realization, after having it beaten into their thick skulls, that new Fed Chair, Janet Yellen, is cut from the same cloth as her predecessors, Greenspan and Bernanke, and therefore she’s not one to upset the markets’ applecart, especially a couple of weeks before Christmas! Or maybe, the markets were asking the same questions I asked above, about how could he make a statement like that without facts?   I think Fed Head Bullard is a smart cookie folks. but maybe he stepped in the dookie here. OK. Let’s go to something else.  Well, that was yesterday, and this morning, the dollar is still looking fatigued. The euro continues to move toward its pre-rate cut in November levels. I had a reader of the blog send me a link to a story about why the euro is so strong. The writer had 2 of the three points down, but missed one, and I pointed it out in my response on the blog. Haven’t seen the blog? You can find it at:…  Here’s my response from yesterday. “thanks for the note and link to the story on the euro. I agree, and think the writer missed a very important reason for the euro’s rise this year.The ECB has a shrinking balance sheet, after competing with the Fed for largest balance sheet, the ECB’s balance sheet is now shrinking, while the Fed’s continues to expand, now nearing $4 Trillion.” The soon to be major player in the currency markets, the Chinese renminbi, saw another move in the right direction last night. There are a couple of things going on in China that need to be discussed. First is the mixed bag of economic data results that printed last night. Chinese Industrial Production didn’t meet the expectations for November, but same month Retail Sales unexpectedly beat the estimates. Now, let’s not get out the Chicken Little acts just yet, Industrial Production failed to meet the estimates, but it still printed with a 10% gain from a year earlier! (the consensus called for 10.1%)   So, in my opinion, things continue to look up for the recovering Chinese economy. In addition, Chinese vehicle sales were up 16% last month VS a year earlier. The middle class in China continues to spend and that’s just what the Chinese leaders want to see. More domestic demand. The other thing going on in China is the Central Economic Work Conference, which is the group that sets the Economic and Reform Agenda for 2014. We could see some real fireworks come out of this meeting, with it all being good for the renminbi / yuan. I read a report yesterday that Singapore and Hong Kong had joined forces instead of competing to deliver Chinese investment products. This is HUGE folks. Yes, it flew under the radar screens of the markets, but just like the first currency swap agreement 5 years ago did, I found it, and believe it is and will become a very important cog in China’s quest to remove the dollar as the reserve currency of the world.  The Swedish krona is having a rough day, and not participating in the currency mini-rally VS the dollar. The krona was sold after a report showed that Swedish Industrial Production fell -1.7% in October and Orders fell -2.5% month on month. This is a real rogue report, as the majority of the economic data prints have painted a different picture in Sweden of economic strength, that’s worthy of a rate hike. Recall that a week or two ago, I told you that Sweden’s Central Bank, the Riksbank, was contemplating one more rate cut, before they began their rate hike cycle in 2014.  And data like this today, fuels the Riksbank’s wishes. The Riksbank meets next week, and the call on rates could be very close. But today, the markets believe it will be for that one final rate cut, which is why the krona is at odds with the other currencies today. I say, “if you have to cut one more time, go ahead and get it over with, so we can then set our sights on the next move which should be a rate hike in 2014”!   I’m sure the Riksbank will take what I have to say as the gospel, and work accordingly! HAHAHAHAHAHAHA! The Allman Brothers great song, Whipping Post is playing, and I have to tell you yesterday, that’s exactly how I felt.. Sometimes I feel, like I’ve been tied to the Whipping Post, Good Lord I feel like I’m dying. Sometimes I feel, Sometimes I feel.  But then there’s the next day, and I’m full of sunshine and colorful kites! You’ve gotta love days like that! The Bank of England Gov. Mark  Carney, was out speaking to whomever would listen to him yesterday and decided to throw a bone to the markets, by saying that “We need to provide a lot of stimulus, but that stimulus can create risks”.  I always thought that Mark Carney was an OK Central Bank when he was at the Bank of Canada (BOC), until that is, he kept interest rates steady even though he kept teasing the markets by saying that the need to withdraw stimulus is near.  And now I see he’s a two-handed economist.  you know. “on one hand we need to provide a lot of stimulus, and on the other hand we know it can create risks”   The pound sterling has been the best performing G-10 currency VS the dollar the past 6 months, gaining 5.60% VS the green/peachback. Soon we’ll begin to hear the exporters in England crying about the pound’s strength, and Carney will have to choose to do something about the currency strength or listen to the crying. He’ll probably choose to do something about the currency, so be careful here. Do you know what G-10 currencies are the worst performers of the past 6 months? While I hate to have to list these, as there are some of the ones here that I always list as currencies I think people should look to own. of course I do my opinions on fundamentals, and sometimes fundamentals get lost in the shuffle.. But Norway, Australia, & Canada  are three of the four worst performers the past 6 months..  I don’t think I have to tell you that Japanese yen is the 4th member of this club of shame. 6 months is a small sample folks. So don’t get all upset here. The Indian rupee continues its attempt to get back to a positive gain this year, but its running out of time, as there are only 3 weeks left in the trading year. But given where this currency was 6 months ago, the recovery has been quite impressive. Here’s what’s going on that is fueling the rupee’s recovery. 1. The economic reforms that the new RBI Gov. has implemented, and 2. The political party that is perceived to be more “business friendly” is winning most of the seats in the regional elections. Think back to August, it’s not that long ago, and the darkness that engulfed the rupee. I did an interview with Bloomberg’s Pimm Fox on India, and I told him that the new economic reforms needed to get implemented and in place and we would see things improve in India. I do believe he was quite skeptic of that thought at the time. Gold saw a positive day yesterday, and is up $6 this morning. If the shiny metal can hold on to its gains today, it would mark a 3-day rally. But beware, the gains in a 3-day rally can be wiped out in a NY Minute, by the price manipulators. Other than that, I found something in Ed Steer’s letter this morning that’s interesting regarding Gold, and China.  here’s Ed. “The news that China imported about 130 tonnes of Gold through Hong Kong came out about two weeks ago from an inside source and is now old news. But now that the numbers have been “officially” released here’s Nick Laird’s chart of the situation as of Oct. 31. Note that the Cumulative Imports from this one official source is now double what China has stated they have in reserves. Without a doubt they have more they haven’t told us about, and probably much, much more.” Chuck again. Yes, I don’t have the chart he talks about, but imagine if you will, the line that looks like a moon shot representing the Gold imports in China.  The reason I believe this is important, and this won’t be anything new to long time readers, but I have to say it anyway. The reason this is important, is that I truly believe that China wants to back their currency with Gold, maybe not 100%, but some backing of Gold, which would make their currency the most attractive currency in the world, which would go a long way of achieving their goal of gaining a wide distribution of the renminbi. And don’t forget, that China also produces Gold that they keep. Now, James Rickards, believes a different scenario for all this Gold hoarding by China. He believes that the financial system collapses, and that the countries with the biggest amount of Gold come to the table, they get to call the shots on the new financial system for the world. And China being China, will come to the table with more Gold than anyone could ever imagine, thus surprising the likes of the U.S., Japan, Germany and U.K.   Either one of these scenarios will play out good for Gold. The U.S. Data Cupboard is pretty empty today, but will get back on the docket tomorrow with Retail Sales for November, which I talked about yesterday. The BHI indicates that it will be a strong report, as the Christmas shopping season is going good at our house! Before I head to the Big Finish today, I have something that just really got me going to yell at the walls this morning. Well, according to the Fed now owns 1/3rd of the entire U.S. bond market.  Let me repeat that for those that just skipped over it. Your Central Bank, not that you had any say in who you wanted as a Central Bank, or as in my case I would have vote for no central bank, but your Central Bank now has bought over .3% of all Ten Year Equivalents, from the private sector every week!  By this time in 2014, the Fed will own about ½ of the entire bond market! YIKES! That’s your cue that interest rates will remain near zero for some time to come folks, for if interest rates rose as they probably should, and will eventually, then the losses on those bonds would be HUGE! For What It’s Worth. This was sent to me by a dear reader, and then I saw it on Ed Steer’s letter this morning, so I thought, it must be good! It originally appeared in the NY Post and is an article written by John Crudele.. Let’s listen in. “The most curious thing of all about the November jobs report released on Friday was the huge drop in the unemployment rate – and the fact that the Labor Department chose not to disclose that the data going into that figure are under investigation for falsification. On Nov. 19, I broke the news in my column that the Census Bureau, which collects data that goes into the jobless rate on behalf of Labor, had caught one of its enumerators fabricating interviews in 2010. The culprit said back then (and to me during an interview) that he was told to do so by Census supervisors who were in the position to instruct others to make similar fabrications. In fact, a source who I haven’t named but who is familiar with the Census data accumulation process has told me that falsifications have been occurring on a regular basis. The Labor Dept. did put in a note about the survey week change in its Nov. report. But it should also have included another line that said: “The data for the unemployment rate may have been compromised. Lots of people looking into the matter right now. We’ll get back to you on whether you should believe these numbers or not.” Chuck Again. OK. This John Crudele sounds like someone that would fit in nicely in a discussion on the Butler patio! That’s all I’ll say about all this. To recap. The currencies are inching along with small gains VS the dollar which is the way that Chuck believes, large moves begin. St. Louis Fed Head, James Bullard spoke yesterday on Tapering’s benefits. and Chuck has some questions for him. China saw mixed data, but Chuck believes it’s all good. And Sweden saw a weak data print overnight, which comes at a bad time, given the Riksbank will meet next week. And China has more Gold than they are telling us they have, are you surprised? Currencies today 12/10/13. American Style: A$ .9120, kiwi .8305, C$ .9405, euro 1.3750, sterling 1.6440, Swiss $1.1245, . European Style: rand 10.2970, krone 6.1225, SEK 6.5480, forint 218.70, zloty 3.0415, koruna 19.9455, RUB 32.68, yen 103.00, sing 1.25, HKD 7.7530, INR 61.02, China 6.1114, pesos 12.82, BRL 2.3080, Dollar Index 80.07, Oil $98.57, 10-year 2.82%, Silver $20.06, Platinum $1,390.25, Palladium $740.28, and Gold.. $1,248.47 That’s it for today. Chicago’s Make Me Smile is playing, and that’s a song that gets me drumming on the desk, and singing along, but now Mike is here, so I have to sing to myself. My beautiful bride got the lights on the tree (what Everett calls the Trismas Tree) last night, now the kids will start to decorate it. I told you it’s a big one, and I’m not kidding! I’m still seeing red from the Bowl selections. Someone said that they choose based on how the school’s fans will travel.  Hey! Hold it somewhere warm and people from ice-cold Missouri will flock there! Just take a look at spring training each spring! Those aren’t locals filling the stands, they’re people from ice-cold parts of the country! Should be a shorter day for me today, looking forward to that! And with that thought, I hope you have a Tom Terrific Tuesday! Chuck Butler President EverBank World Markets 1-800-926-4922 1-314-647-3837last_img