In This Issue…

* Overbought dollar gets sold!
* Euro climbs to 1.38!
* Eurozone Industrial Production soars!
* U. S. and China… here we go!

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

Dollar Positions Get Crushed!

Good day… And a Wonderful Wednesday to you! Last night, with the Cardinals having a day off, I spent a ton of time reading and watching the markets overseas… I saw glimpses of what I might see this morning, but didn’t see coming, what actually has happened overnight, and this morning… The dollar has been sent to the woodshed, and the selling has been something that mirrors the buying it saw a couple of weeks ago! The euro… has just reached 1.38, and just like I told you yesterday, if the euro was going to 1.38, the Aussie dollar (A$) would reach parity again, and looky there… A$’s are $1.01!

What turned on the dollar? Ahhh grasshopper… I told you yesterday that “Investors are extraordinarily long dollars right now”… An overbought position, tends to get sold, and when it does, it goes the extra mile to sell and sell and then sell some more… But that’s not everything, so… let’s start today, with a review of what happened yesterday…

As we talked about yesterday, the Slovaks had the last vote on the changes to the European Financial Stability Fund (EFSF)… I told you that I didn’t think the first vote would be “yes”, but that a second vote taken a couple days later would yield the result that the other 16 euro members have already reached. I thought that a “no vote” might cause some slippage in the euro’s value, but that would be short-lived… OK… here’s what really happened… The Slovaks did vote down the changes to the EFSF… But immediately announced that a second vote would take place, and the changes would be approved at that vote… So…

The euro didn’t see slippage, as everyone said… “OK, it’s just a matter of days before it gets passed, there are no more questions about whether it gets passed, so let’s go ahead and reward the euro.”

But, there’s more! Operators are standing by, and if you call in the next 20 minutes, you not only get 2 reasons for the dollar shellacking but three!

And here’s the third reason… not as important as the first two, but important nonetheless… Eurozone Industrial Production for August printed at +5.3%, more than doubling the forecast for a 2.1% rise in Industrial Production… This report really surprised the markets, and they acted accordingly… Which is a fundamental that was actually acted on appropriately! WOW!

So… there’s a HUGE risk aversion reversal going on this morning… investors are exiting the safe havens, like U.S. Treasuries and dipping their collective toes back into the risk assets water. Want some proof? Well… yesterday, and I know, I forgot to give you the 10-year yield in the currency round-up, the 10-year U.S. Treasury was 2.08%, having moved back over 2% for the first time in a month. (it actually hit 2.07% late on Friday)… But this morning… the 10-year Treasury has a yield on it of 2.21%! WOW! That’s a Huge move up in yield, folks… and as I’ve told you before… with bonds, when the yield goes up… The price goes down!

And how about the Fed’s Twist & Shout? Wasn’t that supposed to bring long term Treasury yields down? Well, the 30-year has gone from 2.80% on 10/4, to 3.17% today… And if you think the loss in the 10-years were big, you get more bang for the buck with the 30-year… ($119.12 on 10/4, and 111 today)…

OK… enough of that… of course I get all lathered up when the so-called “safe havens” show their true colors… and they are shining through, now!

So… put all that up against the goings on here in the U.S. economy… Did you hear the news yesterday that all of the jobs that have been added since the financial meltdown on Wall Street (2008) will probably be lost in the coming weeks… That’s right 10,000 Wall Street jobs to be cut… That’s just awful! But I think it points out something here… Wall Street is experiencing falling profits, so they cut jobs… When profits were good they added jobs… They didn’t add jobs because they received some tax credit… they added jobs because their business dictated the need to add jobs, not because of some Gov’t program!

But knowing how the BLS works, they’ll figure that these 10,000 workers all started new businesses in the coming months, and count them as being added as new hires… Ok, I say that in jest, because we all know that can’t really happen, right? Ahem…

I see that our U.S. Treasury Sec. Tim Geithner is giving Europe his two cents worth of advice again… Just when the markets feel better about the prospects of European Banks, with the recapitalization efforts, Geithner tells them that “Europe must go beyond bank recapitalization to settle crisis.” OK, folks, we have a new “Mr. Obvious”! Really? Europe has to do more? Get out of here! Really? I mean, I bet European leaders thought they were home free here! NOT!

Look… you have to start somewhere… and a strong financial industry needs to be in place before a country can begin to correct prior mistakes. And that’s what the Eurozone leaders are attempting to do… start at the beginning, and stabilize the financial industry… But, thanks for your input Tim… Don’t know what we would have done without it!

And I have to wonder if all this dollar selling is seeing some selling develop from the news that the U.S. Senate passed the bill that will punish Chinese exports for having a weak currency… I’ve talked about this till I’m blue in the face, but it looks like a little more is needed here…

The U.S. believes that by reducing the Trade Imbalance between the U.S. and China that it will create more jobs in the U.S… Hmmm… I sure hope they are correct… but unfortunately, I believe they have Opened Pandora’s Box of Trade Wars… The Chinese are ticked about this… The Chinese Ministry of Commerce had this to say after the news of the bill passing… “The move has seriously violated international regulations and sent a wrong signal of escalating trade protectionism. “

U.S. companies doing business in China are also opposed to the Senate’s passing of the bill. In a letter sent in late September to Senate leaders, 51 US business and industry organizations, including American Association of Exporters and Importers, American Chamber of Commerce in China, and Agriculture Transportation, warned that “unilateral legislation on this issue would be counterproductive not only to the goals related to China’ s exchange rate that we all share, but also to our nation’s broader objectives of addressing the many and growing challenges that we face in China.”

Arguing that the renminbi’s exchange rate is not the cause of China- US trade imbalance, China has voiced its strong opposition to the US Senate’s passing of the bill, warning the US politicians against politicizing the issue of China’s currency and resorting to trade protectionism. – from China Daily…

OK… enough of that too! I could go on and on, like a broken record… no wait, youngsters don’t know what that is! Try a scratched CD! Or a damaged MP3! Oh… and the Chinese renminbi is stronger this morning… You have to wonder if that continues… Because the Chinese can go with a number of responses… and one of them could be a weakening of the renminbi… But… I think they will continue to allow the currency to appreciate at their own speed…

So… what will the U.S. traders think of this dollar shellacking overnight? I think they will not like it… and I truly expect these lofty figures of this morning (go ahead and peek at the currency round-up) to be sold by U.S. traders… not that they would do it to protect the dollar… But instead, I’m sure during the last go-around of dollar strength, they had tons of customers that wanted out, but missed their opportunity… This morning’s figures give those people, that obviously didn’t buy the currency as a diversification for their investment portfolio, that opportunity to sell now…

Gold is up $21 this morning… We really haven’t seen many days lately, that see both anti-dollar assets, the euro and Gold moving up against the dollar at the same time. That’s when you know the dollar has been sent to the woodshed, when both of these anti-dollar assets are moving up at the same time!

I saw an article yesterday that highlighted the Gold buying going on in India… Well… you have to love it when astute investors see a “buying opportunity” that Gold & Silver have offered, as their prices plunged from highs set in September… In India… inflation is soaring, and the Gov’t or Central Bank isn’t doing anything about it, so Indian people are buying Gold to protect themselves!

And in Australia overnight… Australian Consumer Confidence printed and continues to be quite resilient… Consumer Confidence rose .4% last month, following an 8.1% surge the previous month… This moved the index number to 97.2… So… like I said yesterday… I still don’t see the need for what the markets are calling for, which would be two rate cuts, totaling 1/2% by next spring…

I always get notes from dear readers regarding the Swiss franc… “why don’t you talk about it every day”? and “why is the franc falling”? Stuff like that… I think we’ve talked about this before, but in case you missed class that day… There’s not much to talk about in Switzerland, folks… The goings on with the Swiss National Bank (SNB) is about as exciting as it gets there, and I’ve beaten the SNB like a rented mule (no animals were actually hurt!) for their intervention… The franc was much like the dollar was as we started this week… overvalued, and overbought… Nothing has changed here… the SNB got what they wanted, a weaker franc…

Then there was this… from… “The world’s advanced economies are headed for a second recession, regardless of whether there is further chaos in Europe, noted economist Nouriel Roubini told CNBC on Tuesday.

The question is not whether or if there is going to be a double dip, but whether it’s going to be mild or severe with another financial crisis,” Roubini, head of Roubini Global Economics, told CNBC on the sidelines of the World Knowledge Forum in Seoul. “The answer on that depends on the Euro zone.”

According to Roubini, a disorderly situation in Europe caused by a sovereign debt default, a banking crisis, or an exit of one of the members from the euro zone, would be a shock more severe than the collapse of Lehman Brothers in the U.S..”

Chuck again… I’ve always thought that Nouriel Roubini was one of the best economic minds out there… And he’s right about all this… But, remember he was just saying that a disorderly situation could cause more problems… he wasn’t saying that there would be a disorderly situation…

To recap… The dollar longs are getting crushed this morning… Yesterday I told you that the dollar was overbought, and this came to a head overnight, along with the clear path to passage of the changes to the EFSF, and a very strong Industrial Production number for the Eurozone. The currencies are all moving stronger against the dollar, along with Gold & Silver this morning.

Currencies today 10/12/11… American Style: A$ $1.0120, kiwi .7935, C$ .9840, euro 1.3775 (has already slipped a tiny bit), sterling 1.5765, Swiss $1.1135, … European Style: rand 7.82, krone 5.6450, SEK 6.62, forint 212.35, zloty 3.1285, koruna 17.9930, RUB 31.13, yen 76.70, sing 1.2760, HKD 7.78, INR 48.94, China 6.3588, pesos 13.25, BRL 1.7755, dollar index 76.98, Oil $86.16, 10-year 2.21%, Silver $32.80 and Gold…. $1,681.15

That’s it for today… I guess we’ll see all kinds of saber rattling between the U.S. and Iran now, that the U.S. has accused Iran of supporting a terrorist act here in the U.S. Thank goodness that attempt was thwarted! Yay for the good guys! I found out who left the Missouri Tigers PEZ dispenser on my desk… Thanks Joe! The young lady that takes care of me at the hospital each day for my radiation treatment, is so sweet… her father and I share the same birthday! And my dentist, Dr. Holly Ellis, called me at home yesterday, just to see how I was doing… how sweet! Hey! Has your dentist called you out of the blue to see how you’re doing? Mine did! So, I’ve got that going for me! Hey… I’m so grateful that I have such thoughtful friends, and associates, and dear readers… So… to answer the question… I’m fine… tired, but fine… It’s raining here today, and is supposed to rain all day and night… Game 3 of the NLCS is tonight here in St. Louis… could be a long rain delayed game… And with that I’ll get this out the door… I hope you have a Wonderful Wednesday!

Chuck Butler
EverBank World Markets