In This Issue.

*Risk assets rebound on Fed statement.
*RBNZ leaves rates unchanged.
*As too does the Riksbank.
*Gold rebounds, before NY Open.

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

China’s Economy Turns The Corner.

Good day. and Tub Thumpin’ Thursday to you!  Things are looking a bit better for the risk assets this morning, so we’ve got that going for us! Joe Bielicke just stopped by, to alert me to the delay in bringing our stuff up to date this morning. But should be good-to-go by the time everyone gets here. So, we’ve got that going for us today too!  And I’m coming to grips with the idea that the Cardinals will not win “12 in 12”. (Their 12th World Series Championship in 2012). I have to admit I never really thought that was possible, as it’s just not that easy!  And if they did, wouldn’t everyone be on board for 13 in 13? And so on. So, I’m good now with their loss.

So. Like I said above the risk assets have turned around and have a bias to buy them and sell dollars this morning.  The big things from yesterday saw 1. ECB President Draghi in the German Parliament, in an attempt to win the over to the idea of bond buying by the ECB. Those meetings were in private, and I haven’t found anything that tells me how it went, but with the euro rallying this morning, that might indicate that things went well. The other big thing yesterday saw 2. The Fed Reserve end their two-day FOMC meeting, and decided it best to not announce an increase in their latest round of Quantitative Easing (QE), but don’t worry it’s coming, my spider sense is tingling!

The Fed did make this statement, “exceptionally low levels for the Federal Funds rate are likely to be warranted at least through 2015”.  So, let’s step back and see what the Fed has going on right now. They are still trading the Operation Twist (& Shout!), which has them selling the short end and buying long term bonds. They just announced QE3. and they pretty much told us that the near zirp (zero interest rate policy) will continue for 3 more years.  Can you say, pedal to the metal? Or how about, opening the spigot all the way?  The Fed Heads have basically said, “the economy had better rebound with all this accommodation.”  I have a friend, who sent me a note and said to further my call from almost 2 years ago, that there would be QE3, and more up to QE24.  He said to call the next round, QE4-ever!

Ok. I really don’t want to go any further with the Fed, for they are not high on my hit parade, and when I begin to discuss them my blood pressure rises. So, let’s keep Chuck from dealing with hypertension and move along.

Well. earlier this week, I told you that the Canadian dollar / loonie had gotten taken to the woodshed on the dovish comments of Mark Carney, the Bank of Canada’s (BOC) Gov.  Well. since that time, Canada printed a strong Retail sales report for August, with Retail Sales rising .3% VS the .7% in July.  Can you say strong domestic economy? I knew you could!  And the other day, the BOC left rates unchanged, which I thought they would, but. maintained their tightening bias! Recall, I said that I was afraid that the BOC would change their bias to neutral?  Well.  the BOC came to their senses, and realized that the economy is too strong, (not soaring, just too strong) for rate cuts, and that a rate hike could very easily be implemented, should the economy continue at this pace.

Not only does the BOC see the strong domestic economy, but also the recovery going on in China. They are not fooled or allowing the wool to be pulled over their eyes, by the calls of a stronger U.S. economy, knowing all too well, the problems that exist there.

The Reserve Bank of New Zealand (RBNZ) left rates unchanged last night.  The new RBNZ Gov. Graeme Wheeler appears to be an inflation hawk, and that’s a good thing for the New Zealand dollar / kiwi. The markets had priced in a rate cut for January, 2013, and now they have to re-think that move, as Wheeler said that “inflation is expected to accelerate.”

So, in the past two days, the interest rate cut campers in both Australia and New Zealand have had to back away from rate cut gun. And both currencies have rallied because of the rate cut campers having to back away.  Now, things could change between now and early next year for these two countries, and they might have to go back to the rate cut table. But, my thought is that, China is coming out of its self-inflicted slowdown, and that’s the green-light that these two countries are looking for.

And speaking of China. The Chinese renminbi/ yuan reached a 19-year high last night (VS the dollar), and basically reached the end of the “allowed trading range” for the first time!  So, apparently other traders and investors are seeing what I’ve pointed out, and that is a recovering Chinese economy. Stronger manufacturing and Trade Surplus data has really lifted the black cloud that hung over the Chinese economy.  So. more and more traders and investors are seeing what I saw, finally! 

There are a couple of things going on China and with its currency that is traded offshore now in Hong Kong. the renminbi/ yuan in Hong Kong is even stronger than the price for the currency on the mainland. So, the flow into renminbi/ yuan is back!  And apparently, the Chinese Gov’t isn’t getting all itchy about it.

Another Central Bank, Sweden’s Riksbank, met this morning, and left rates unchanged. but. said that, “further easing has become more probable as growth slows.”  The Riksbank cut rates 3 times earlier this year, so it probably wasn’t prudent to cut them again at this time.  The Riksbank believes that the “Swedish economy has so far shown resilience to the debt crisis in Europe, but now Swedish exports are being clearly damped by the weak activity in the euro area. However, the consequences for the economy as a whole are alleviated by households having relatively good purchasing power.”

So. the Riksbank sees a need to cut rates in an effort to weaken the krona to help exports, but. they also understand maintaining purchasing power of a strong currency. Geez Louise, don’t you wish our central bank understood the reasons to maintain the purchasing power of a strong dollar?

Speaking of the U.S. dollar and our loss of purchasing power (The Big Boss, Frank Trotter, talks about it in the TTWT piece today)..  I saw this last night. from the WSJ. “Chief executives of more than 80 big-name U.S. corporations, from Aetna to Weyerhaeuser, are banding together to pressure Congress to reduce the federal deficit with tax-revenue increases as well as spending cuts.

The CEOs, in a statement to be released on Thursday, say any fiscal plan “that can succeed both financially and politically” has to limit the growth of health-care spending, make Social Security solvent and “include comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.”

Where have these guys been before now? Sure, it’s better to be late than never, but. this is very late!

Gold has rebounded this morning with the risk assets, and is up $13, but that’s now, before “the pm’s arrive in NY”.  Here’s my thought on the take down of the price of Gold (&Silver). You would think that China would be stomping and screaming. But, they take the high road, as we should too. They use the price manipulation as an opportunity to buy at cheaper levels. I can’t even think what it would be like if China got upset with the price manipulation. But they haven’t, yet, and instead buy at cheaper levels. I’ve told you all why they hoard Gold. so I won’t go there again.

I saw a story on the Bloomberg this morning that caught my eye. “North American companies have announced plans to eliminate 62,600 positions at home and abroad since Sept. 1. According to data compiled by Bloomberg, Firings total 158,100 so far this year, more than the 129,000 jobs cut in the same period of 2011.  The companies are forced to do this because of a persisting slump in sales.

But, I thought the unemployment problem was going away? NOT!  On a sidebar here, a reader asked me if the U.S. broke out full-time and part-time workers in the labor reports like the foreign countries do?  Well, not for the report that everyone follows. But there’s data on this. An additional criticism of the unemployment rate is that weak labor markets often force workers who would prefer to be working full-time to work at part-time jobs but the unemployment rate counts full and part-time employees equally. The broadest alternative unemployment rate, so-called U-6, includes all marginally attached workers as well as those working at part-time jobs when they would prefer full-time work in its measure of ‘unemployment’. The  level of U-6 remains significantly elevated, reflecting the sharp deterioration in labor markets during the recession; however, since December 2010, the measure has declined by 1.9 percentage points, falling from 16.6% to a level of 14.7% in September.

Those “Gov’t figures” so take them with as many grains of salt that you wish.

Then There Was This. from the Big Boss.  “I don’t really watch the debates since to my way of thinking they are just staged promotions exclusively for the two major parties.  One line about Iran from the reality show on Monday that did catch my attention, but for another reason was, “it is crippling their economy. Their currency has dropped 80%” as it is under attack by global sanctions. 

Lets step quickly away from middle east policy and note that in the past ten years over two administrations our very own US dollar has lost 32% of its value versus the euro, 50% versus the Australian dollar, 42% versus the Japanese yen, and even 24% against China who is a forthright currency manipulator.  Apparently it didn’t take international sanctions to accomplish this.  If it’s a victory for Iran to have a currency under attack wouldn’t someone think to bring up that it’s a bad thing for the US dollar to be under attack from within?

Our long held view is that currency values are impacted primarily by four factors: relative fiscal policy – the budget and debt situation, relative monetary policy, trade and balance situation, and the core capacity of a country – see  It seems to me that a long term objective of the US should be to stabilize and then improve the value of the US currency by paying attention to all four of the factors mentioned.  Since congress with presidential leadership controls the first one and the Fed the second we’ll assume that the defining silence on the matter clearly outlines the approach over the next four years no matter who holds the Great Seal.” – Frank Trotter

Chuck again. Frank and I have worked together a long time, and we used to do presentations together. We believe that there’s no political will to do what needs to be done to correct this mess we’re in.  and, to end this, I used to tell people that Frank and I have worked together so long that when we began to work together the Dead Seas wasn’t even sick yet!

To recap. The risk assets have rebounded  in the overnight markets, mostly on the Fed’s statement yesterday that the low fed funds rate is warranted through 2015..  Hey, Don’t they just keep moving the goal posts on this?  The risk assets are also getting help this morning from the recent trading in the Chinese renminbi/ yuan, which shows funds flowing back into China as it appears that China’s economy has turned the corner. The RBNZ and Riksbank left rates unchanged, with kiwi rising on the non-move and the krona losing a bit of ground on the non-move.

Currencies today 10/25/12. American Style: A$ $1.0390, kiwi .8240, C$ $1.0095, euro 1.3005, sterling 1.6145, Swiss $ $1.0755, . European Style: rand 8.6955, krone 5.7305, SEK 6.6815, forint 215, zloty 3.1850, koruna 19.1780, RUB 31.21, yen 80.15, sing 1.2195, HKD 7.7505, INR 53.58, China 6.2416, pesos 12.93, BRL 2.0240, Dollar Index 79.79, Oil $86.45, 10-year 1.83%, Silver $32.17 and Gold. $1,716.75

That’s it for today. and for me this week. I have to do Continuing Education on my securities licenses tomorrow, bright and early. So, hopefully Chris won’t mind picking up the conn on the Pfennig tomorrow.  Every 3 years, I have to do this Continuing Ed. I guess that’s better than sitting for those tests again!  Congrats to the S.F Giants for their Game 1 win, as they beat the Cy Young winner from the Tigers. When I woke from my nap yesterday afternoon, little Braden Charles was there, and we went outside to play in the leaves. He loves to make noise, and those crunchy leaves were pretty good noise makers!  Next week is Halloween, can you believe that it’s here?  I love to sit outside and hand out the candy, and to see the little kids in their costumes, always so cute!  And, now it’s time to get this on the conveyer belt to be delivered to you! I hope you have a Tub Thumpin’ Thursday!

Chuck Butler
EverBank World Markets