In This Issue.
* A$ & kiwi back off recent gains.
* It's all about the FOMC and Tapering.
* Tapping the brakes.
* Gold sees short position close outs.
And, Now, Today's Pfennig For Your Thoughts!
Reaching A Budget Accord? .
Good Day! And a Wonderful Wednesday to you ! What day is it? Come on. Mike, Mike, Mike, what day is it? It's Hummmmmpppp Day! Another Arctic blast of frigid air is coming our way which means we won't get back to the normal cold temps we usually have at this time of year. Shoot Rudy, the official start of winter is still to come! YIKES! I had a dear reader send me a note and remind me that when I'm looking for warm places, that I shouldn't forget Hawaii. Ahhh, Hawaii.
Well, I was all prepared to talk about the recent positive price moves in the Aussie dollar and kiwi, this morning, but then I came in and turned on the currency screens and it was a case of "so much for the best laid plans of mice and men"! I was about to tell you how Building Approvals in Australia continued their huge surge higher in Nov. and that the news last week that investors were returning to Aussie Gov't Bonds was finally getting some air play, were responsible for the recovery of the A$ since it nearly fell below 90-cents. But this morning, all that good stuff was wiped out by fears that the Aussie Nov. Employment Report will keep with the recent trend and print to the downside. The report will print tonight and is expected to show a 10K gain in jobs for November. But as I said, the recent trend has been for the actual number of jobs gained to be on the downside of the expectations.
And then in New Zealand, kiwi has looked very exciting recently, and why not considering New Zealand's Trade Weighted Index (TWI) has increased by 2.4% since the last Reserve Bank of New Zealand (RBNZ) meeting. Then add in the giddiness of the markets over a Central Bank that will actually be raising rates soon, and you had the ingredients of a currency rally. But then along came the actual RBNZ meeting, and now the worry warts are getting fidgety about what the RBNZ might say. and when the markets are feeling fidgety about something, the respective currency gets taken to the woodshed.
Now, I'm not one to get all worried about stuff like that, and look at the worry warts as a good thing for those wanting to buy kiwi but thought that once it hit 83-cents that it was too late! Besides no currency is ever a One-Way Street to anything. Shoot Rudy, we know that all too well, just following the plight of the U.S. dollar. It's been in a weak trend for 11 years, almost 12 years now, with circuit breaker years in 2005, 2008, and 2011. But always returning to the weak underlying trend. So, dollar weakness hasn't ever been a One-Way Street to reach its intrinsic value, but eventually it will get there, for there will no longer be any circuit breakers to flip!
So, with only the Monthly Budget Statement to come out of the U.S. data cupboard today, the goings on in Australia and New Zealand take front and center. It's not often we can say that! But there you go! Tomorrow is the much anticipated U.S. Retail Sales Data for November. I already told you that the BHI indicates that Retail Sales will be strong in Nov. Hey! It's the Christmas Shopping Season, and Consumer Credit is soaring higher once again, and the Personal Spending data shows we're back to spending more than we make, so put all those together and what do you get? A strong Retail Sales figure. Something to make the boys and girls at the Fed smile like Cheshire Cats.
Next week, the whole week will be about the FOMC meeting. I had a meeting yesterday with a currency dealer, and she told me that their firm had a 50/50 call on whether the Fed announced tapering at this meeting. You should have seen her jaw drop, when I said, I think that Quantitative Easing / QE was now a normal part of the Fed's monetary policy. So, when asked if I thought the Fed would Taper this month, I said, "why would I think that, if I think that QE is now a part of our monetary policy?"
A long time friend, through the Pfennig, as I've never actually met this fellow, but through the years he has talked me down from many ledges, and given me lots to think about, so, he sent me a note on Tapering that I asked him if I could use. Here is Peter's thoughts on Tapering, which I truly believe hits the nail squarely on the head!
"It is my belief that "Taper Talk" is simply another jawboning technique for restraining the markets. In the past, talk of raising interest rates would have the same effect, but that's a "no-no" right now.
As you know, when you tap the brakes on your car, the brake lights come on immediately, even before the brake pads contact the brake rotors and start slowing the vehicle down.
I think the Fed is playing a little game, and various members are "tapping the brakes" in an attempt to slow down the adverse effects of QE (rising asset prices). There a big difference between "tapping" or flashing your brake lights, and actually applying the brakes because you intend to slow down."
Chuck again. Unfortunately, the markets don't see it like Peter and Chuck. They get all lathered up time and time again over whether this is going to be the meeting where the Fed announces Tapering, and they trade accordingly, which is a sad thing for those that believe otherwise!
The price of Gold shot higher by $25 yesterday, reaching a 3-week high, before profit taking set in and the shiny metal is down by $5 this morning. I'm told that a surge in "short positions at the COMEX to the highest since July because a bit too crowded, and prices rallied as some short positions were closed out." The COMEX is the division that responsible for metals trading and trading in futures on metals.
I've talked about all these short positions, in fact a few weeks ago I told you about how many days of production was needed to cover the short positions of all four precious metals, (Gold, Silver, Platinum and Palladium). So, you know about how there are far too many short positions held than there is metals mined. I still think that this is wrong, and that the CFTC (commodities regulator) should put a stop to it. But then, we all know it's all a wink and nod to the firms that short the metals by a "greater authority".
OK. one of our currency dealers at HSBC sent me a note yesterday telling me that Gold and yen are being closely correlated. As Gold inches higher, yen recovers VS the dollar. And further Gold gains could pressure yen to move favorably VS the dollar. It's a safe havens thing, I guess. But then this morning kind of throws a spanner into the works, with Gold down $5 and yen rallying VS the dollar. I try not to get all caught up in correlations, but realize that sometimes they work, but it's like those Bud Light commercials with the people doing strange things so that their teams will win, you know superstitions. It's only weird if it doesn't work!
Well, the U.S. apparently reached a budget accord that according the Bloomberg, will ease the long-criticized automatic spending cuts for the next two years, remove the risk of a government shutdown and cut the deficit by $23 Billion. Excuse me if I leave my excited face at the door, folks. This is a circus, and pretty soon the VW Bug Car will come along and all the clowns will climb out of the car!
Oh, those horrible automatic spending cuts, which helped the Budget Deficit this year to its lowest figure in 5 years! OK. I have to stop right here, right now, because I'm afraid of where I'll go with this. But let me just say this. If you want to just willy nilly throw something together so that everyone plays together nicely in the sandbox, and not accomplish anything to speak of, then fine, go ahead and get excited about the new budget accord.
The Chinese renminbi / yuan has reached another 20-year high VS the dollar overnight, as the Chinese allowed the currency to appreciate again, and now the renminbi / yuan is sitting at 6.11, with the next move down in price (up in value) taking it to a 6.10 handle. In June 2005 before the peg to the dollar was dropped, (in July) the renminbi traded at 8.2765. Yes, it's been a slow move to 6.11, but remember that from 2008 to June of 2009, the Chinese kept the renminbi flat.
Why during that time period I hear you asking? Think back. in 2007 the financial meltdown began showing signs of being devastating and in 2008 to March of 2009, it was front page news every day. So with all the problems in the U.S. the Chinese decided it was best to just keep a steady hand on the renminbi / yuan. Then once the U.S. announced its first round of Quantitative Easing in March of 2009, the Chinese were ready to resume their assault on the dollar, for in their eyes, if the U.S. was going to throw the dollar on the tracks with QE, then the Chinese were going to play that game too.
I really spent some time talking about China and the renminbi / yuan in the next Review & Focus, that I'm putting the final touches on today. So, look for that in a local newsstand next month! HA! But what I'm getting at here is that to me, it appears that China is really stepping up the pace of their actions toward removing the dollar as the reserve currency. Recall, I told you a few years ago, that thought it would happen by the end of this decade. And the Chinese are helping me out with that call, by stepping up the pace of their actions.
Not that I flippantly think that it would be a good thing for the dollar to lose its reserve currency status! I live here, that means I use dollars for gas, groceries and giggles, and when the dollar loses its reserve currency status, it'll take more and more of those dollars for gas, groceries and giggles! But, at least I have done what I told you all to do many years ago. diversify. using currencies and metals. That diversification while not making hay now, will certainly help ease the pain of our currency losing its reserve currency status!
For What It's Worth. I found this through my Casey Research subscription, and then this morning, Ed Steer had a snippet so I thought, what the heck! I'll set the stage here. Professor Krassimir Petrov was asked about Gold's correction if it was over or not, and he responded with an answer that covered the near term and long term. Petrov believes that the correction in Gold isn't over, which is bad news, but then he talks about the "mania phase". It was interesting so, here it is.
"Yes, it's great news. But we're still not going to get to the Mania Phase for at least another two, but more likely four to six years from now.
Now, we should clarify what we mean by the Mania Phase. Last time, it was the 1979 to early 1980 period. It's the last phase of the cycle when the price goes parabolic. Past cycles show that the Mania Phase is typically 10% or 15% of the total cycle. So it's important to pick the proper dates for defining a gold bull market. I prefer to date the previous one from 1966 as the beginning of the market, to January of 1980 as the top of the cycle. That means that the previous bull market lasted 14 years, and it's fair to say that the Mania Phase lasted about 18 months, or just under 15% of the cycle.
So I expect the Mania Phase for the current bull cycle to last about two to three years, and it's many years yet until we reach it."
Chuck again. It's nice to dream, eh? Just thinking, and hoping and wishing and praying, won't get Gold going again. It's going to take the physical demand to outweigh the short position paper trades. I don't see how this works without that happening, folks.
Currencies today 12/11/13. American Style: A$.9115, kiwi .8255, C$ .9440, euro 1.3765, sterling 1.6375, Swiss $ 1.1265, . European Style: rand 10.3960, krone 6.1160, SEK 6.5405, forint 219.70, zloty 3.0385, koruna 19.9230, RUB 32.76, yen 102.55, sing 1.2510, HKD 7.7545, INR 61.24, China 6.11, pesos 12.91, BRL 2.3265, Dollar Index 79.98, Oil $98.53, 10-year 2.80%, Silver $20.39, Platinum $1,390.75, Palladium $737.80, and Gold. $1,257.87
That's it for today. A day for meetings yesterday, made the day fly by. And you know my affection for meetings! HA! My beautiful bride heads south today to get warm. lucky girl! Our "houseguests" the kids are about to move into their new house, I think this weekend. That would leave just Alex and me at home for the next week. Alex's wrestling season has already started, and he has a dual-match tonight, so I better get a good nap in to stay awake for that! They start these wrestling matches so late! I like the "after school" sports! About 8 weeks or so until pitchers and catchers report. There! Just saying that gets me warm inside for a minute! The Walker Brothers are singing their song, without love. A dear reader sent me a note and a link to a story about how researchers are using music to help people remember things, so there! I've been helping you all with your memories all these years! OK.. what day is it? Let's go have a Wonderful Wednesday!
EverBank World Markets