In This Issue.

*  Will Draghi buy weaker credit bonds?
*  Aussie Retail Sales disappoint!
*  Norges Bank announces NOK buying program.
*  Swiss Gold referendum to be a game changer.

And Now. Today's A Pfennig For Your Thoughts.

How Much of Draghi's Announcement Is Priced Into The Euro Already?

Good Day! .  And a Wonderful Wednesday to you! And Welcome to Rocktober!  Yes, Pfennig tradition calls for me to call October, Rocktober in honor of my rock-n-roll guitar playing past! Well, we're one day closer to hearing what European Central Bank (ECB) President, Draghi, is going to say about what kind of bonds the ECB will begin buying. Right now, it's believed that he will opt for ABS (asset backed securities, and covered bonds) only. However, at the same time, it is believed that he will be allowing lower credit rating bonds from Greece and Cyprus into the mix. Should he go that route, I think the Germans will throw a tizzy-fit. So, tomorrow has the potential of having fireworks.. But not like the happy fireworks we saw at the end of the AL Wild Card game last night, when the KC Royals walked off with a win in the 12th inning!

I can tell you right here, right now, that my legal guy that reviews the Pfennig each morning, is not going to like that I shifted from serious talk about the ECB, right into baseball talk. He doesn't get how my mind works, nor should he I guess, for he has far too many other irons in the fire to worry about!

Alrighty then. The ECB, as I told you the other day is between a rock and another rock, but if Chuck were the captain of that ship, he would just leave the economy alone, get my hands out of the cookie jar, and let the chips fall. Of course, I said the same thing years ago, first about the Bank of Japan, the Bank of England, and the U.S. Fed.  When will they ever learn? When, will, they, ever. learn? Apparently not any time soon, eh?  So, how much of the euro's losses that have come since the last meeting of the ECB, where Draghi, first announced bond purchases, is priced in? Hmmm. I would think quite a bit. And therefore we could see a bounce soon, for the euro is quite oversold right now. But there's this question of the devil in the detail for what bonds Draghi will buy, that's holding the euro hostage right now.

Well, I put another feather in my cap last night, when the Japanese yen traded through 110.  This is one of the few currencies that I think should be much weaker on fundamentals, and forget about the “safe haven” status stuff. The fundamentals here have been rotten to the core for some time, and they are finally catching up with yen.  Yen was however, able to trade back below the 110 figure, and I'm sure there were some black box trades to buy once yen got to 110. But that's not going to be yen's savior every time the markets push the currency through 110.

I had to stop and laugh about a story on the Bloomberg this morning with this title: “Fat Fingers Seen as $617 Billion of Cancelled Stock Deals Roil Tokyo Market”.  So, we must have some Pfennig Readers at Bloomberg, for they have taken to my using “Fat Fingers” as the common excuse for mistyping.  But apparently, stock orders amounting to more than the size of Sweden's economy were canceled in Japan overnight, in what is being blamed on a trading error.  “Fat Finger trading mistakes occur periodically” was the quote from Bloomberg. I concur, yes they do! Especially with these fat stubby fingers of mine!

The Aussie dollar (A$) is cheaper again this morning, but overnight it attempted to recoup some losses. That is until the latest Aussie Retail Sales report printed, and the A$ was back on the selling blocks. Yes, Aussie Retail Sales for August rose just .1% (consensus was for a +.4% gain), with department store sales taking the brunt of the decline in sales. You know, when the Central Bank continues to diss the economy, and talk about all the bad things, it begins to wear on the psyche of consumers. 

Not in the U.S. but elsewhere that is! Here in the U.S. we spend, spend, and spend, like there's no tomorrow.

Yesterday it was announced in Norway that the Norges Bank (Central Bank) had announced its intentions to buy krone (NOK) for the first time from the oil revenue account to “support government spending”.  This news brought about a rally in krone, which is long overdue. But then later in the day I read some additional news on this announcement that seems to attempt to water down the enthusiasm.  The Norges Bank came out and said that these purchases of krone were “well foreshadowed and are part of a longer-term plan, not a change of policy.”  And then promptly referred to a report issued earlier this year by the Norges Bank, where they warned everyone earlier this year that it would turn from being a net buyer of foreign exchange for government transfers to the Government Pension Fund Global to a net seller as falling net oil revenues decline relative to expenditures.

So, basically it's like this. Norway was buying foreign exchange currencies for their fund. They are now selling them and buying krone, which on the outside sounds like winner, winner, Chicken dinner for krone, right? But when you think about this it's not good. These purchases should be seen as a negative for krone, as they point out the ongoing shift from being a saver of Oil Revenues to a consumer.   UGH!  But remember, Norway is the best fiscally responsible country on earth, and any change in that will be like a large ship turning around. it will take a while. And while that ship attempts to turn around, things in Norway could change for the better, and the ship could be righted!

In the latest Brazilian Presidential election poll, the incumbent, Dilma Rousseff has pulled into the lead. UGH! The markets are not going to like this result, and end up taking it out on the real. The election is October 26, and Rousseff has 47% of the vote VS 43% for the challenger, Silva. The poll has a margin of error of + or – 2%… So, even with the margin of error, Rousseff looks to be back in the saddle, and all that good, positive trading in the real that took place when the early polls had the challenger, Silva, in the lead, is being reversed now. I guess it just shows to go ya, that money talks and BS walks, right? The Gov't has the money to spend on getting votes.

I want to spend a minute or two talking about the Swiss Gold Referendum that will take place on November 30th. Did you know that if the Swiss people vote “yes” on this referendum that the Swiss National Bank (SNB) would have to increase Gold holdings from 10% to 20% of its balance sheet, that the SNB would have to stop selling Gold, and other precious metals, and be required to hold all their Gold within the country.    This is a HUGE deal for Gold, folks.

And I'm not talking about the increase to 20% of the SNB's balance sheet in Gold reserves. I'm talking about the SNB having to get all of its Gold home. Repatriate is the word, and it's a nasty word to the U.S. You see, the SNB holds a good portion of their Gold reserves in the U.S. And we saw last year, how difficult it was for Germany to get their Gold, so difficult that they game up and said, forgetaboutit! 

This could end up being the straw that breaks the camel's back folks. I would be keeping an eye on this. And I can't tell you what I would do any longer, the regulators have put the clamps on that, but in my opinion, and I could be wrong, this is a game changer. And when there's a game changer, what should you own? Hard assets. But then it could all turn out to be a tempest in a teacup, and the Swiss become as soft as the Germans were.

And this will also put pressure on the SNB to defend the cross floor they put in place a couple of years ago with the euro, where the cross can't go below 1.20.

And before I begin to talk about data here in the U.S. I wanted to go over some data that printed in the U.K. overnight. Remember when the pound sterling was rising earlier this year, and I kept telling you that I couldn't get my arms around this rally, for the skeletons in the U.K.'s closet would eventually be exposed? Well, overnight, the U.K. manufacturing index fell to a 17-month low of 51.6 (still expanding), from August's 52.2 print. And the consensus was for a rise to August's 52.2 to 52.7. but that didn't happen, and the pound is getting sold like funnel cakes at a state fair this morning.

Semantics. I tell the marketing and brand people all the time, it's just semantics. You can say, that the Fed highly influenced interest rates lower with QE. Or you can say it my say, that the Fed manipulated interest rates lower with QE.   I thought of this when I saw two back-to-back emails from research areas at Barclays and RBC yesterday. Barclays claimed that U.S. Consumer Confidence “slides in September”, while RBS claimed that, “U.S. Consumer Confidence falls sharply in September”.   One describes a gentle downward slide, the other describes a fall like a rock from a cliff.  So, I'll let you decide.Consumer Confidence Index for September fell from 93.4 to 86.0.  In terms of this index's history this is a large move, as the usual monthly moves are much smaller, although there have been some similar moves of this one in September  in the past.

The S&P/ CaseShiller Home Price Index also fell (-.5% in July) as did the Chicago Purchasing Manager Index (manufacturing for that region).  So, not a good day for data in the U.S.  Today's U.S. Data Cupboard will have the ADP Employment Change, for September, which looks like 205,000 new jobs for the month, and the ISM Manufacturing Index for September. We'll also see Vehicle sales, but I won't start beating that horse again, today. you all know how I feel about this stuff going on in car loans.

Before I head to the Big Finish today. A dear Pfennig readers, Dick, sent me an article yesterday written by Big Al Greenspan, and guess what? Big Al, had gone back to his roots, as a Gold Bug. That's right, in this article, Greenspan talks about why Beijing is buying Gold. Let's listen in to a snippet here. “Yet Gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millennia, Gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when Gold or direct claims to Gold are offered in payment of an obligation, it was the only form of payment, for example, that exporters to Germany would accept as WWII was drawing to a close.”

Chuck again. So. Greenspan is an Ayn Rand disciple and a Gold Bug in his younger days, along with being a jazz musician, and trades it all in to join the dark side. And then becomes a Keynesian, and prints money that has no Gold backing. And then leaves the dark side, and becomes a Gold Bug again. I don't think “real Gold Bugs” are going to accept his re-entry that easily.

For What It's Worth. Well, yesterday, I saw an email come in that had a title: U.S. – Afghan deal allows American Troops to remain past 2014, and of course I had to see what was being said here. This is from the Washington Post. and of course if you want to read more than the snippet or two that I have for you, just click here:

“The United States and Afghanistan on Tuesday signed a vital, long-delayed security deal that will allow nearly 10,000 American troops to remain in Afghanistan beyond the final withdrawal of U.S. and international combat forces this year.

The troop number is to be cut in half by 2016, with American forces thereafter based only in Kabul and at Bagram air base. By the end of 2017, the U.S. force is to be further reduced in size to what U.S. officials have called a “normal” military advisory component at the U.S. Embassy in Kabul, most likely numbering several hundred.”

Chuck again. I read this article and the thought just kept shooting into my brain that the last to leave, could find things pretty hairy. I always think about the video from Vietnam, when the last helicopter left. the whole process here is scary to me.  And don't believe for one minute that it won't be costly. I detailed the money being spent on the bombing in Iraq and Syria last week, I won't go there again, but once again I'll say, that it's money we don't have to spend, but will have to print to pay the debts, and that just dilutes the dollar's value even more.

To recap. Bits of news regarding what ECB president, Draghi will be announcing tomorrow at the ECB meeting regarding bond buying, began hitting the streets overnight, and it appears that Draghi is ready for a street fight with Germany, for rumors have it that he'll announce ABS and covered bond buying, but not just from good credits. Greece and Cyprus are rumored to be in the mix, and that won't sit well with Germany.  This news has the euro scrambling around once again this morning, and trading below the 1.26 handle again, after the single unit started to recover a bit yesterday. Aussie Retail Sales were disappointing, Gold is still bouncing around, but always with a bias to sell. and Norway announced a krone buying program, that on the outside sounds good for krone, but on the inside will not be.

Currencies today 10/1/14. American Style: A$ .8695, kiwi .7790, C$ .8920, euro 1.2595, sterling 1.6190, Swiss $1.0430, . European Style: rand 11.2860, krone 6.4560, SEK 7.7620, forint 246.05, zloty 3.3175, koruna 21.8295, RUB 39.55, yen 109.90, sing 1.2760, HKD 7.7625, INR 61.58, China 6.1525, pesos 13.44, BRL 2.4420, Dollar Index 86.10, Oil $91.55, 10-year 2.49%, Silver $17.02, Platinum $1,266.75, Palladium $769.00, and Gold. $1,208.65

I mentioned the price of Oil yesterday (it was ($94.75) and then it immediately fell to $91 and change. I said to the group, that's it! I'm not mentioning anything's rally again, for all I seem to do is give the asset the “kiss of death”. UGH!

That's it for today. The NL Wild Card Game is tonight, Giants and Pirates. I would have to think the Pirates will come out of this with a win, and go to Washington to take on the Nationals, while the Cardinals go to LA to play the Dodgers. Tim passed around a picture from Forbes yesterday that has metrics on how “hateable a team is” And the Cardinals were the number one hateable team in the playoffs. Of course not by Cardinal Nation! That certainly was an entertaining game last night, as much as I saw of it before going to bed. Our Blues finally won their first exhibition game last night, I was beginning to wonder about my call that this was going to be their year! HA! (It's only exhibition, Chuck, calm down!)  One of my fave people, and former semi-boss, Erika Nolan, had a big announcement this week. I wish her a ton of luck in her new endeavor.  And you know what scares the bejeebers out of me, besides the U.S. fiscal situation? That Ebola is now in the U.S. I sure hope the Dallas hospital has it all under control. OK. let's lighten up here a little, Chuck!  Our string of chamber of commerce weather is going to end tomorrow, when a cold/ rain front comes through. Hey, as long as it's contained to Thursday, and by Friday and the weekend, it's beautiful again, I'm good with that! HA!  Alrighty then, it's time to say, I hope you have a Wonderful Wednesday!

Chuck Butler
EverBank World Markets