In This Issue.

*Lawmakers & Gov’t play games.
*Currencies & metals still rallying.
*If Gold’s Wednesday sell off wasn’t manipulation.
*Jumping on the Aussie rate cut bandwagon.

And, Now, Today’s Pfennig For Your Thoughts!

China Spreads Its Tentacles.

Good day.  And a Happy Friday to one and all! I made it! One full week! YAHOO!  I think.  The next couple of weeks are going to go by very quickly, folks are you ready? Please fasten your seat belt and keep your arms and legs inside at all times! Tomorrow we begin December. have you made your Gold or Silver or Platinum purchases for gifts yet?  And it’s one day no cliff jumping and then one day the cliff jumping is on..  The games people play, every night and every day now.

I got a great start this morning, as the first song playing on my iPod is a song called “Gold on the Ceiling” by the Black Keys.  talk about making you dance while sitting in your chair!  So, since Gold is on my mind, let’s talk about Gold, and then get to the markets yesterday and overnight.  Recall me telling you yesterday that the previous day saw Gold drop $25? Well, the actual low was about $36 down at one point on Wednesday.. The drop was quick and dirty.  So, with my spider sense tingling, I went to see what was up with that huge drop.

I got to thinking that we’ve seen these huge one-day (even in a couple of hours) drops in Gold & Silver the past couple of years. To me, there is no other explanation for these huge drops than price manipulation by the bullion banks. I’ve told you about the HUGE short positions that these bullion banks hold, so I don’t have to go into that. But remember what I presented to you about how if your job was to protect the value of the dollar, and you repeatedly saw the dollar lose value to Gold, what would you do?    And the Gov’t just keeps spending what it doesn’t have. You would probably organize a cartel to keep the price of Gold down and turn your back to it, wouldn’t you?  OK. let me clearly state that this is just a conspiracy thought, I’m not saying this is what’s going on. but it sure does make sense doesn’t it?

OK. Well, the currency and metals rally that was going on yesterday morning, kept the bias on selling dollars, but not a quick pace. The euro finally climbed back to 1.30, which is where it sits as I write this morning, and Gold added about $5, and is up $3 this morning. A long way from the $36 it lost in value on Wednesday, but adding to value is never anything to be ignored!

I think the markets are growing tired of waiting for the U.S. lawmakers and Gov’t to come to an agreement on the Fiscal Cliff. In my opinion this is all drama. And a deal to kick the can down the road will come to fruition, because no party wants to be associated with the rot on economy’s vine that will be caused by the Fiscal Cliff actually happening. And if the markets get that feeling, which I think they will soon, if they haven’t already, the dollar is in for a visit to the woodshed.

The Japanese yen is not participating in the currencies and metals rally.  Earlier this week, I told you how traders were confused as to which way to trade the yen, as it used to be considered a safe-haven along with dollars and Treasuries, but that the selling in yen would resume shortly. And looky there! Yen has dropped to a 7-month low. And the data is beginning to pile onto the yen’s problems. Last night, it was the Japanese inflation reports, or better yet, the lack-of-inflation reports! 

The Bank of Japan (BOJ) is wishing and hoping and thinking and praying that they can squeeze out 1% inflation, but prices stagnated in October, and September’s prices were in decline year-on-year.  Look for the BOJ to announce more stimulus soon (sound familiar?) to get inflation going. And for the yen to continue to fall in value.

See what debt gets you? And the U.S. and even the yield curves, etc. have followed Japan for the past 10 years. How long have I been doing the bit about turning Japanese, yes, I really think so?   Oh, well. eventually the debt becomes such a burden that the Gov’t and Central Banks’ hands are tied. This is Japan now. and the U.S. later.

The Aussie dollar (A$) continued to soften up yesterday, as the calls for a rate cut next week at the Reserve Bank of Australia’s (RBA) meeting are gaining roster members. One bank that follows the A$ changed their call yesterday from no cut to a rate cut. I wish I could just change my mind like that! I’ve said all along that the RBA would make cuts next year, not as aggressively as the markets previously thought, but not this year. I’m I’ll stick to that thought. I’ll probably have egg all over my face on this, as I seem to be the only one out on this limb.

In other news from Australia. The RBA’s Trade Weighted Index of currencies, was updated and in the re-weighting of the index, the Chinese renminbi / yuan received the biggest boost, with the euro receiving the biggest drop.   Now doesn’t that make sense for the RBA to increase the weighting of the Chinese currency?   The good news is that this boosts the renminbi’s distribution, and that’s the Chinese’s main goal right now. obtaining a wider distribution for the currency.

Speaking of China. Standard & Poor’s (S&P) said yesterday that China has exceptional growth prospects. and in a Bloomberg Poll, confidence in the Chinese economy is at the highest level in more than a year. And don’t look now, but the renminbi / yuan is going to book its 4th consecutive month of gains VS the dollar. It’s all about the optimism that I first told you about a couple of months ago, folks. it’s real, and it’s here.

Oh. and speaking of gaining a wider distribution for their currency.  China Construction Bank, issued the first Dim Sum bond outside of Hong Kong yesterday, launching it in London!  Remember when I explained what the Dim Sum Bonds were to you?  Basically it’s a bond denominated in renminbi and issued in Hong Kong. Well, now they can be issued outside of Hong Kong.  And still most people even astute investors sit and don’t think this will amount to anything.  But, we all know, that it’s China taking one baby step at a time to gain a wider distribution of their currency.  which is one of the steps they need to take to remove the dollar standard, which they’ve stated they will do.

Unemployment in the Eurozone rose again in October to 11.7% from 11.6%…  But, CPI (consumer inflation) for the Eurozone fell to 2.2% from 2.4%…  So, those two data prints wiped each other out, and the euro pushes higher.

In Brazil. I hate to say, “I told you so”, but in the case of Brazil, I’ll say it with a smile on my face because I told them this would happen.  Last night, Brazil reported that their economy expanded in the 3rd QTR at half the pace forecast by economists.  And what was the biggest cause for this drop? The lack of investment.  And what caused this lack of investment?  The HUGE rate cuts, and the other plethora of road blocks the Brazilian Gov’t put up to block investment flows pushing the value of the real higher. GDP in Brazil only grew .6% in the 3rd QTR. And annualized it’s on pace to be 2.4%…  (The Gov’t forecast a 4.7% GDP for 2012).  So. I also dislike having to say this, but I think the rate cuts are not over for Brazil, as the Gov’t will see this GDP report and panic.  

Staying in the Americas. Canada did, as I expected, print a wider Current Account Deficit yesterday, for the 3rd QTR. but. it wasn’t as bad as expected. The Current Account Deficit rose to C$18.9 Billion in the 3rd QTR from C$18.4 Billion in the 2nd QTR. recall yesterday I told you that the “experts” thought it would be nearer to C$19.2 Billion. But this is still the second largest level on record, folks.  With the price of Oil moving downward in the 3rd QTR the damage to the net trade numbers was quite evident.  The Canadian dollar / loonie just shrugged off the data, and remained flat on the day.

And then here in the U.S.. get ready folks. get ready for more asset purchases (Quantitative Easing) and money printing, because the Fed heads have painted themselves into a corner and there’s no way out. Let’s listen in to NY Fed President, Dudley. “I will be assessing the employment and inflation outlook in order to determine whether we should continue Treasury purchases into 2013. The Fed will promote maximum employment and price stability to the greatest extent our tools permit, and we will stay the course.”

My old colleague at the Sov. Society, Evaldo, wrote a good piece on this yesterday, pointing out that the Fed’s Operation Twist will end on Dec. 31st, and won’t be extended. So, bond purchases will be needed to be continued to keep rates low.  So. in my opinion, which could be wrong by the way, I think that more bond purchases and money printing will continue, and the line I told you about previously regarding Quantitative Easing (QE) saying it was QE-forever. is looking more and more like reality.

Then There Was This. Well.. once again, my conspiracy blood is boiling, my spider sense is tingling, and the goose bumps are rising..  Recall my discussion about Germany not being able to audit their Gold holdings at the Fed NY?  And the Germans making a big deal out of this inability to audit their Gold holdings?   Well. guess what happens when you cause a big deal about this to the media?   Here’s the next step in my eyes, folks.

“The U.S. Treasury has issued a damning criticism of Germany’s chronic trade surplus in its annual report on worldwide exchange rate abuse. The Treasury did stop short of labeling the country a currency manipulator.  However, Treasury did outline Germany’s internal balances within the Eurozone as disrupting the global trade structure, and stating that nothing was being done to curb the huge surpluses.”

Chuck again. So. if you make life difficult for us, we’ll make life difficult for you.  That’s the game the U.S. Treasury wants to play with Germany. Hmmm. If I were a German leader, I think you know how I would react to this dart that the U.S. Treasury has thrown at Germany.   How about demanding the return of my Gold?  Or. looking for alternatives for reserves instead of U.S. Treasuries?  

To recap. The currencies and metals rally lasted all day, but at a slower pace as the day went on Thursday. The euro climbed back to 1.30, and Gold attempted to regain lost ground in the huge price manipulated, drop on Wednesday.  Looks like everyone is jumping on the rate cut bandwagon for Australia except Chuck. The Japanese yen is getting what’s coming to it for going into such unsustainable debt, and China is spreading its tentacles, folks. are you watching?

Currencies today 11/30/12. American Style: A$ $1.0420, kiwi .8270, C$ $1.0070, euro 1.3005, sterling 1.6040, Swiss $1.0790, . European Style: rand 8.8270, krone 5.6750, SEK 6.6610, forint 216.25, zloty 3.1590, koruna 19.4180, RUB 30.90, yen 82.70, sing 1.2210, HKD 7.75, INR 54.26, China 6.2215, pesos 12.92, BRL 2.1050, Dollar Index 80.15, Oil $88, 10-year 1.62%, Silver $34.30, and Gold. $1,730.32. and with it being Friday, let’s take a look at the U.S. Debt Clock. click here.

That’s it for today. A long week for me, but one that feels good to get done. I got my eye polished yesterday. The young lady that hand painted it, took care of me. I told her about all the compliments the eye gets. I’m still amazed at the how she hand painted it!  And did you see the judge is allowing Hostess to sell off its assets and unemployed 18,000 people?  Crazy times, for sure. the Big Courtney Estates Progressive Dinner is tomorrow night. and then on Sunday we’ll celebrate Everett’s birthday and hopefully have time to go cut down our tree!  It’s supposed to be 70 degrees on Sunday, that would sure beat cold and rainy like it was last year when we cut down our tree! So, a busy weekend for yours truly. But then no more until Christmas.  And with that.. I thank you for reading the Pfennig. and I hope you have a truly Fantastico Friday!

Chuck Butler
EverBank World Markets