In This Issue.

*  UK Retail Sales beat expectations.
*  Renminbi gets back to appreciating.
*  Kiwi gets caught up in A$ weakness.
*  Richard Russell on this Fantastico Friday!

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

Lofty Praise For Yours Truly.

Good Day!  And a Happy Friday to one and all! This will eventually turn out to be a Fantastico Friday, I can feel it in my bones, for it's a Friday to begin with, and then add in that it's the start of a 3-day Holiday Weekend, and we just got paid the other day, throw all that together, and you get a Fantastico Friday!

It doesn't appear that it will go down as a good week for the currencies and metals, and it started out so promising on Monday. But that's what you get when we are stuck in a short-term bear market rally for the dollar. That's what I believe it is, folks, but then I could be wrong, right? I just don't see the “sea change” on the debt front that would kick this short-term rally into a multi-year trend. If you notice what all the pundits and economists are saying these days, it centers around “2014 will be the year of the dollar”. They don't say anything about what happens past 2014. And think about this for a minute. Didn't we see 2005, 2008 and 2011 as “years of the dollar” and then nothing? Yes, we did.

OK. So, the dollar is stronger again this morning. Today, I'm seeing just two currencies gaining VS the dollar, and they are pound sterling and renminbi. It appears that the rot on the Aussie dollar's (A$) vine has finally spilled over to kiwi, and the euro has really lost some ground the past two days. That and all kinds of fun today, so let's get going!

The pound sterling, which just last week was disappointed by the Bank of England's (BOE) decision to remain steady Eddie on interest rates, is back in the driver's seat this morning.  Sidebar. speaking of driver's seat. That was a great song from the late 70's, by Sniff-N-The-Tears.  Don't know that one? You should!  OK. back to pound sterling. This morning the UK printed a better than expected Retail Sales report from December. What was expected to be a .3% gain turned out to be a 2.8% gain in Retail Sales VS November. And annualized, Retail Sales grew 5.3%, which is more than double what was expected!

So once again, the pressure will begin to be applied to the BOE to hike rates.  But now the markets will have to wait till the February BOE meeting for any change in their interest rate policy. And knowing how BOE Gov. Carney works. First, he'll tell the markets that the BOE is ready to hike rates, and then wait another month to do it. By the time the March BOE meeting comes around, Carney hopes that the markets have given up (like they did in Canada!) and he can drag it on even longer. 

That doesn't mean that until we get to February or March, that the markets won't at least give it the old college try and push the envelope to pound sterling strength. Could be an opportunity to do something short term, for those of you who like to do that kind of stuff. Me? I'm a long-term diversification kind of guy. Short term stuff is too much like gambling to me, but I've seen lots of winners over the years, can't deny that! But I've also seen plenty of losers, so be careful!

The moves overnight in kiwi are very representative of the fact that the cross of A$ / kiwi has gotten too out of whack. We had kiwi gaining and A$'s losing ground faster than you can say OMAHA! HA! So the cross between the two got out of whack. I don't think this downward direction in kiwi is any indication that the currency is about to reverse all of its recent gains. This is just a short-term thing to correct the cross. I think that next week holds the cards as to when we'll see the Reserve Bank of New Zealand (RBNZ) begin to hike rates. 

You see, next week, New Zealand will print their latest CPI (consumer inflation) report, and here it means something, as opposed to the U.S.'s version of cooked booked for inflation. I expect that New Zealand's CPI will have moved up from .9% to 1.5% and with that kind of move, I would expect the green light to go on for a rate hike, very soon from the RBNZ. The RBNZ has a 2% inflation target. So, even though inflation will be below 2%, the trajectory of the data is really moving fast, so the RBNZ will want to stay ahead of the inflation 8 Ball. 

A little history for you, if that's not your thing, go ahead and skip to the next paragraph. But back “in the day” When Central Bankers were all about providing price stability and their currency's value, the Reserve Bank of New Zealand's Gov. was Don Brash.  And Mr Brash's deal with the NZ Gov't  was that he would get fired if inflation went over 2%…  Now, that's a deal!  And every Central Banker should be have their feet held to the fire like that. Provide price stability, and the currency's value, and nothing else! No Quantitative Easing, no ZIRP, no EZ credit. 

OK. I'm back now from make believe land. But. Let me remind everyone that what I just described is the way it used to be. When fundamentals ruled. and sentiment? It was way down on the list of things that make a currency valuable.

Well, China got back to the appreciation window last night, just in time to set themselves up for Sunday night's print of 4th QTR GDP.  I think it will print better than the depressing stuff the markets are saying about China these days. China has been known to surprise the markets, and I think Sunday night they will do the same!  Mike will tell you about it on Tuesday.

Even with the Peoples Bank of China (PBOC) pushing the renminbi / yuan down a couple of days this week, the currency will end the week up, marking the 4th consecutive week of gains for the renminbi / yuan. Dollar strength? Not here folks. Not here.

Speaking of Weekly moves. Gold has booked gains in the first two weeks of this year, but that all ended this week, that is unless the price manipulators would close their eyes, and allow Gold to trade with a flyer today! As If, that's going to happen!  The shiny metal continues to be put on the chopping block. But you know, there's a precious metal that didn't lose ground last year. Palladium was the only precious metal to eke out a gain VS the dollar last year, and so far this year, the metal that's used in catalytic converters, is holding its own.

And the euro has seen some weakness the past couple of days that has taken it below 1.36. Nothing has really happened in the Eurozone to lead to this, it's simply a case of dollar strength. I was really thinking that we would see the euro move to higher ground this year, and we still may see that materialize, but for now, it's weaker, not stronger in 2014.

Yesterday, the U.S. Data Cupboard had the stupid CPI report for December. And for those of you who are keeping score at home, CPI (consumer inflation)  was up .3% on the month, and 1.5% on the year. That's right, this data is trying to tell us, you and me, that inflation was only up 1.5% last year. Now see why I call it stupid? It's not reality!  Shoot Rudy, even John Williams at sees inflation at 5.5%… I personally think it's around 8%, but then that's just me.

I've always told you that inflation is a personal thing. Each person's inflation rate is different, for they do and buy things that other people don't, therefore if inflation is soaring in tuition, but they don't have kids, they won't experience the inflation pain of tuitions, and so on.

Today's Data Cupboard has two of my faves, Capacity Utilization and Industrial Production. The rest of the lot contains all 2nd Tier data prints, so I pretty much expect to see the day and week end in the ranges that are already set this morning. In other words, there's nothing here to see, move along these are not the droids you are looking for!

I had a dealer friend of mine send me a note yesterday on HSBC's outlook for the Fed in 2014. (Thanks Shauna!)  The thing that caught my eye, is that HSBC (Hong Kong Shanghai Banking Corp) believes that the Fed will continue to taper by $10 Billion at each of the next 7 meetings, thus bringing Quantitative Easing to an end.  And this is what I'm up against folks. I don't believe the Fed Heads will get close to ending QE before they realize what a mistake they made.  And HSBC isn't the only Banking Giant to come out with a call like that. So, it's Chuck against the world of Giant Banks and their large research divisions.  Little ole Me against the Giants. HA! I have to laugh at the thought of “little ole me”!

But it won't be a laughing matter when all these Banking Giants have to change horses in the middle of the stream. Of course I could end up being wrong, and I'll be the one changing horses in the middle of the stream, but then I'm expected to lose this battle, right? I have to be the underdog in this battle.

Before I head to the Big Finish today. I wanted to highlight something a dear reader sent me yesterday. He said, “Thank you for yesterday's Pfennig. A Masterpiece in journalism.”   WOW! Talk about something my mother would have been proud to hear about her oldest son!  My mother always thought I would be a sports announcer, she said I had the voice, the love of the games, and a way of explaining things to people that make it easy for them to understand what happened. She was close, right? My voice is the Pfennig, I love what I do, and I'm still explaining things to people. I miss my mom, she was my one person cheering section, and quite a lady, before MS and cancer took her from us.

And one more thing before I head to the Big Finish. I had to laugh this morning, when I saw Ed Steer's letter. In it, he describes a  article yesterday that talked about how the U.S. Treasury's Lew, tells Japan to stop manipulating the yen. Ed says, “”Pot calling the kettle black? Or a person who lives in currency-war “glass house” throwing stones? Pick your tortured analogy but the U.S. hypocrisy continues.” – Ed Steer

For What It's Worth. In my never ending search for Richard Russell quotes. I found this on the site yesterday. It's Richard Russell talking about what he sees for 2014. 

“Surviving in the modern world becomes more difficult as people face an increasing list of complications, such as Obamacare and America's confusing parade of taxes.  Rising debt leads to deflationary forces, and the Fed's QE antics will not produce enough money to offset the surging levels of debt.

My guess is that Janet Yellen will have to open the spigots ever wider to counteract the deflationary forces of debt.  In the year 2014 our greatest enemy will be debt.  The Fed's debt basket has now increased to over $4 trillion, and is almost beyond the scope of the average mind to digest.

Meanwhile, gold sentiment is beginning to change, and stories are heard of certain funds returning to gold.  This presents a problem for those gold bugs who are still on the sidelines.  To buy or to wait?  My guess is that true gold-philes will begin to buy as long as gold continues to stand its ground.  It appears that 1250 is the major support line for gold.  The longer gold holds above 1250, the stronger it will appear.  I continue to believe that the US dollar is KEY to this market.  As long as the dollar index holds above 78, all will be well.” – Richard Russell

Chuck again. Well, I guess I'm not the only one to think that the Banking Giants have got the tapering all wrong. Come to think of it, I've seen Bill Bonner also express this thought, So, it's me, Bill, and Richard.  Hey! I'll take those two and play anyone!

To recap. The dollar remains well bid, with only the pound sterling and Chinese renminbi / yuan able to eke  out gains VS the dollar overnight and this morning. Gold is off again this morning, thus ending its two consecutive weeks of gains to start the year. Kiwi gets brought down by the squeeze in the cross to the A$'s, and A$'s lose ground again, falling to a 3-year low!  The Data today will not prove to be a new direction for the currencies and we'll end the week in the ranges already established this morning.

Currencies today 1/17/14. American Style: A$ .8790, kiwi .8265, C$ .9130, euro 1.3590, sterling 1.6440, Swiss $1.1015, . European Style: rand 10.8630, krone 6.1705, SEK 6.4675, forint 221.10, zloty 3.0620, koruna 20.2105, RUB 33.48, yen 104.45, sing 1.2735, HKD 7.7560, INR 61.54, China 6.1041, pesos 13.30, BRL 2.3624, Dollar Index 80.96, Oil $94.38, 10-year 2.84%, Silver $20.0270, Platinum $1,438.75, Palladium $742.00, and Gold. $1, 239.64

That's it for today. And for me for the next two weeks! I know you'll miss me. HA! I have to get out of this cold and snow and whatever else mother nature has for us! If you're going to the Orlando Money Show, I'll see you there! Chris & Mike will take turns with the conn for the Pfennig, so you're in good hands.  It was a bad night sports-wise for us here in St. Louis, as our Blues took one on the chin, and my beloved Mizzou Tigers can't win on the road, losing to Vanderbilt.  The Blues should NOT be losing 4-1 AT Home, I don't care who they're playing! That was an ugly loss!  This weekend will be the NFL Conference Championship Games. I'm rooting for the Broncos to win it all. I dislike both S.F. and Seattle teams, so whoever wins that game I won't be pleased with! Just as long as the Patriots don't win!  My dislike for the Patriots goes back to the 2001 Super Bowl VS the Rams. Yes, I hold a grudge a long time!  Next time I talk to you will be after the Super Bowl. So, have fun, stay warm, and be careful out there! I thank you for reading the Pfennig, and I hope you have a Fantastico Friday!

Chuck Butler
EverBank World Markets