In This Issue.
* Currencies carve out small gains.
* China strikes a blow for global growth!
* Modi begins to reform India's economy.
* Bank of Canada bucking the trend?
And Now. Today's A Pfennig For Your Thoughts.
China Injects Stimulus Into Lenders.
Good Day!.. And a Marvelous Monday to you! I've had just a rotten weekend, health-wise, but other than that, the weekend brought about victories from my beloved Missouri Tigers, and the Rams! The Rams had to resort to some trickery to win their game, but hey! A win is a win! And it was against the defending Super Bowl Champs, that made it even sweeter! I really don't know how long I'll be able to go this morning, with the letter, and it has nothing to do with how I feel. My new laptop, is running on battery only this morning, as I failed to secure a power chord before I left on Friday, so when the battery is gone, I'm finished with the letter today.
Before I start with the usual stuff, I wanted to mention a story on the Bloomberg this morning, where a trader was quoted as saying, “Liquidity is not what it used to be”. Uh-Oh! Isn't this the scenario I painted for you all months ago, about the lack of liquidity bringing the markets to a standstill, and causing the Fed to panic and get right back to the Quantitative Easing / QE table? Why, yes, Chuck, it is! And. it's just getting started, folks. this lack of liquidity is going to get a whole lot worse. Well, that's how I've seen it playing out, and it sure appears to be falling in line with I saw playing out, eh?
Front and center this morning, the Aussie dollar (A$) and N.Z. dollar / kiwi, are both on the rally tracks on news that China announced this past weekend that they will inject funds into (about $32 Billion) lenders to help them with year-end liquidity needs. Again, let me point out that these are the kinds of things a country can do, when they have a treasure chest of reserves. But this news helps the currencies of Australia and New Zealand because the markets see that China is doing whatever it can to keep the global growth ship out to sea.
The other Big News from the weekend was that the ratings agency, Moodys, downgraded Russia's credit rating one level to Baa2 from Baa1, and kept their negative outlook on the rating. This news piled on the ruble. Where's the penalty flag? Come on, Moodys was very late in piling on here, ref! There's just no more room for any additional bad news for Russia, but I'm sure there will be more added in the coming days. But all that does it is make for a base from which the ruble can move forward from, in my opinion, which could be wrong.
The overall tone in the currencies this morning is of a weaker dollar against most currencies. The precious metals are carving out some small gains VS the dollar this morning. Hey! I'm not knocking the small moves, or shrugging them off! Small positive moves are better than getting whacked by the manipulators again, eh? Yes, indeedlydo! I read an article this weekend that was about how the markets are just beginning to realize that a dollar rally is taking place, thus suggesting that the dollar rally is just getting started. Really? Had these two writers looked into the lack of liquidity that's also just beginning? I doubt it. But then hardly anyone looks under the hood or around the corner any longer.
It was a good weekend for India's PM Modi, as two states saw his party win elections, one by a landslide, and that now gives him an even stronger position to work his reforms for the economy, from. On Friday, last week, Modi also announced that he was going to drop the fuel subsidies and raise gas prices. On the outside, that might look like a damaging thing to the economy, but what Modi is attempting here is two pronged: 1. To undertake major fiscal changes to the economy, and 2. Have the markets/ investors see that he's serious about doing that. The rupee rallied on all the good news overnight.
India appears to have some momentum now, and that's a good thing, and something I've been waiting for since Modi won the PM election last May! A country that seems to have lost their momentum is the U.K. And I can't say I didn't warn you! Just last week, the latest CPI (consumer inflation) reports showed that the trap door had been sprung on CPI in the U.K. and therefore that dampens the rate hike talk. So much so, that one of the ministers of the Bank of England (BOE) that voted to hike rates in August, has now said that he “was less likely to vote for a rate increase than 3 month ago.”
The U.K. pound sterling is caught up in the currency rally today, so don't get confused by its strength today. Most of that strength came courtesy of the rate hike thoughts. Well, as those thoughts begin to wander and not focus so sharply on a rate hike, the pound is sure to drift.
The European Central Bank (ECB) has begun to buy bonds in their Covered Bonds program, starting with French bonds. Again, this is NOT All-Out QE. And therefore the markets are not all lathered up to bring the euro to its knees. In fact, the euro is carving out a small gain this morning..
You know how I've been so caught up and on my soapbox about Central Bank interference? Well, I had a dear reader send me a story to settle me down. The story is about the Bank of Canada, and its Gov. Poloz, and how he and the bank are bucking the trend of Central Bank interference. Let's listen in to a snippet of the story, that can be read in its entirety here: http://business.financialpost.com/2014/10/17/terence-corcoran-if-the-monetary-god-is-dead-the-bank-of-canada-offers-an-alternative/
“Now, in the wake of assorted continuing troubles, including the recent market correction, central bankers seem to be losing their magic. “The stock market has lost confidence in central banks as gods,” said one commentary this week.
If this monetary god is dead, there's an alternative.
Meet the Bank of Canada – a humble institution that, under governor Stephen Poloz, is becoming a decidedly human-scale institution with specific and limited established objectives.”
Chuck again. It appears that the markets are enamored with Mr. Poloz. Here's another quote, “Poloz threw guidance under the bus and drove back and forth over it a few times”. Seems he's got the tiger by the tail right now. And believe me, the Canadian dollar / loonie needs all the help it can get, with the price of Oil continuing to slide.
So, I talked a bit above about what China did this past weekend. I'm of the opinion that this is just the tip of the iceberg for China and stimulus packages. they have the money, it's not as if they can't afford to do so! They'll put the money where it's needed, and then go away. That's been their MO for years now, and it certainly seems to work. The renminbi was allowed to appreciate overnight. I said a couple of weeks ago, that I thought I would be saying that more often as we went forward. That seems to be playing out just fine.
And with the renminbi / yuan appreciating, the Sing dollar (S$) was also on the positive side of the ledger overnight. I probably didn't need to tell you that, as long time readers have had the relationship of renminbi and S$'s pounded into their heads for years now by me. But, don't forget that last week I told you that a plethora of important data to China will print this week. tomorrow is the day, so strap yourself in, and remember to keep your arms and legs inside at all times!
The U.S. Data Cupboard is empty today. On Friday, we saw some strong Housing Starts data for September that reversed the weak print of August. I'm told that the majority of these Starts are for multi-family housing, apartments, etc. I don't know that this is such a good thing for the data, but building is building, people are working, etc. So it can't be all bad!
This week's data in the U.S. is not anything to get really excited about. On Wednesday we'll get the stupid CPI data, and on Thursday the Leading Indicators, and that's about it!
I talked about Gold and the precious metals above, and the only other news is that the LBMA (London Bullion Market Assoc. ) named Morgan Stanley as a spot and options market-making member. Last week the LMBA named Citgroup as a member also. I would say, that it appears to be that the foxes have been let free to roam in the henhouse.
For What It's Worth. It's all me today folks. are you ready? Yes, I'm ready. To fall in love. no wait! Not ready for that! Forget it Chuck just go to the epistle you're written!
So, there I was last Friday morning, waiting for the return of the Pfennig from the legal review, and saw the note telling me that I was “tough on the Fed”. A little hard on the Beaver, I guess. But I didn't think so, and went with my original draft. I guess I could have gone with the raw data. So, I'll do that here, and see if this sticks. After QE1, the Fed claimed there would be no more. After QE2, the Fed claimed there would be no more. And this is when I told you about my meeting with my friend, John Mauldin, in Vancouver, where he told me that he was at a high level meeting of congressmen, and Fed members, and he said that the congressmen told the Fed members at the table that under no circumstances would the words Quantitative Easing / QE, be used again. Well, then came Operation Twist. and when that was supposed to come to an end, the Fed extended it, and then lo and behold, along came QE3 (I thought that was never again to be used?) And guess what? Now, one of the FOMC's prominent members, is talking about extending QE3.
So, it's semantics to me. Someone that's defensive would take this information as being “hard on the Beaver” But someone that's not defensive, would see it for what it is, simple facts about what has happened. I prefer the latter of the two, of course. But still, there are those that don't see it like that. They think I like to be “hard on the Beaver”. I can assure them right here, right now, I would love to not talk about the Fed at all! I would love it if they just worked in the background providing price stability, and got out of everyone's way. And do these same people think I let the Bank of Japan go scot-free? Or how about the European Central Bank? Have I not lambasted them for their QE packages? Have I not said that Japan is a basket case? And so on. it's a somewhat level playing field, among the U.S., China, Japan, Eurozone, and U.K.. And there's only one major-economy country that hasn't implemented QE. China. And let's see, now. Chuck can't recommend buying currencies, but what has Chuck's opinion, which could be wrong, been about owning these currencies? Well, of these China would seem to be the one to look to own, given they haven't implemented QE. but again, that's just my opinion..
To recap. Russia had its credit rating lowered by Moodys, China has injected $32 Billion into lenders to help them with liquidity needs into year-end, and Modi begins to make major reforms to the Indian economy. All that and more in today's Pfennig, including an epistle by Chuck! The currencies are carving out gains this morning VS the dollar, and there's no data in the data cupboard today.
Currencies today 10/20/14. American Style: A$ .8765, kiwi .7945, C$ .8880, euro 1.2775, sterling 1.6125, Swiss $1.0595, . European Style: rand 11.0445, krone 6.5740, SEK 7.1985, forint 239.85, zloty 3.3045, koruna 21.5480, RUB 40.99, yen 106.85, sing 1.2720, HKD 7.7575, INR 61.34, China 6.1430, pesos 13.53, BRL 2.4490, Dollar Index 85.14, Oil $82.78, 10-year 2.19%, Silver $17.39, Platinum $1,271.45, Palladium $758.00 and Gold. $1,242.00
That's it for today. The Buckinghams are singing their song: Mercy, Mercy, Mercy on the IPod this morning. Good stuff! It sure was a nice day outside here yesterday, I sat outside and watched the Rams game, but had to quickly retreat inside after the game. I went from feeling quite spunky on Friday at work, to a bad night, and the rest of the weekend went down from there, except for the football games. How about those Tigers? Going to “The Swamp” and winning 42-14!!!! (Hey D.C. did we bet again this year?) Almost removes the sour taste of the pasting they received at home the previous week. UGH! I think Major League Baseball decided to wait until the cold weather really set in, in K.C. as they held off starting the World Series until tomorrow night. Barring a sweep by a team, they'll be playing as we head into November. YIKES! Well, the battery is running low. I know she doesn't read the Pfennig, but a big Happy Birthday, to my friend Deb. I hope Mike took you someplace nice for your birthday the other night! And with that. let's see if I have enough power to get this out the door! I hope you have a Marvelous Monday!
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