In This Issue.
* Gold gets taken down again.
* Aussie Trade Deficit widens.
* Hildebrand won't face charges.
* U.S. ISM expands.
And, Now, Today's Pfennig For Your Thoughts!
No Jobs Jamboree, Oh My! What Will We Do?
Good day. And a Wonderful Wednesday to you! This will be a little later than usual today, as I'm late to begin with. I spent the morning arguing with myself over whether I was going to go to work today, for my stomach is not cooperating. I finally decided to go, and give it the old college try. So, here I am! Maybe my body is answering my call to lose 50 lbs by Friday! HA!
Speaking of losing pounds. Aye, Aye, Aye. Gold really got the snot knocked out of it again yesterday after I sent the letter off for review. There was little in the way of reasons for this plunge downward, but it was eerily familiar. It looked just like the previous takedowns generated by the price manipulators, for when else would be a good time to buy Gold other than when the U.S. is in shutdown, and the threat of a default is hanging over us like the Sword of Damocles? So, seeing this, the short position holders had to do something quick. Well, at least that's how I see that it happened. I could be wrong.
The first day of the partial Gov't shutdown was more like a “who cares” trading day. Stocks went up, bonds rallied (albeit a small rally) and the dollar was soft against the fiat currencies, but strong against the hard currencies of Gold, Silver, and other precious metals. So, it's on to day 2 of the Partial Shutdown, which from here on out I'll refer to as the “PS”. Like I said yesterday, there's no reason to go all Chicken Little on this right now. However, should this PS continue to drag on, and we edge closer to the drop dead date of October 17, when the “extraordinary measures” that the Treasury Sec. has used to keep the U.S. debt below the limit, I would think that there will be plenty of time to start screaming the sky is falling, the sky is falling!
And again, let me say, that this isn't just an October 2013 happening. This is what my old boss used to say about the cheese that binds. This is what happens when you build up unsustainable debt for over a decade, and then one day, it's not so easy to rubber stamp a debt ceiling increase. And the dollar should be hung out to dry because of this. Right now, it's drifting with a bias to sell, but there's no real impetus to do so right now. I guess that comes when the Chicken Littles begin to hit the streets!
And all this stuff with debts and deficit spending reminds me of the Ronald Reagan quote, when someone said that Congress was spending like drunken sailors, to which Reagan responded, “To compare Congress to drunken sailors is an insult to drunken sailors” – Ronald Reagan
The Aussie dollar (A$) has lost about 1/2-cent this morning, after booking an over 1-cent gain yesterday. I would think that some profit taking is to blame, but at the same time, I would also think that enough of the “good will” of the Reserve Bank of Australia (RBA) performing a vanishing act on their rate cut bias, has been priced into the A$… The next move higher, if there is one in the cards, will have to come from something else. Or someplace else, namely, China.
The overnight weakness can be attributed to a Trade Deficit that was much larger than expected. The Aussie Trade Deficit for August was A$ 815 Million (A$ 400 million was expected). This is a two edged sword for the A$… Being an island nation, Australia has to import quite a bit of stuff, but in doing so, they are meeting the consumer demand, which is a good thing for the economy. This is a good economy indicator to watch for Australia.
The euro is just a shade lower today than it was yesterday morning. Tomorrow, the European Central Bank (ECB) will meet, and I think the euro will get some relief trading from what comes from that meeting. I totally suspect that ECB President, Draghi, will keep rates unchanged, but keep his rhetoric about having the ability to adjust rates lower should the economy show signs of need.
Draghi will need to be very careful that he doesn't sound like the boy who cried wolf, given the evidence of a cyclical upturn in the Eurozone economy that's going on right now. You know, the euro fell in value after the last meeting on Sept 5th, but then rallied nicely the past three weeks, so we could see some slippage again in the euro tomorrow, given what Draghi has to say.
Another thing hanging over the euro this morning is the threat of the Berlusconi party in Italy becoming unified to vote against the currency Gov't led by Letta. Yesterday, I told you how there were reports that enough of the Berlusconi Party members would defect and not vote against Letta. But today there are reports that the Berlusconi Party will be unified. Ok. stop all this now! Berlusconi. go to jail, do not pass go, do not collect $200! I've had it with your shenanigans! I can't believe that with all the legal problems in your past, that anyone would be associated with your party! Geez Louise!
Well, the best performing G-10 currency overnight has been the Japanese yen. Yes, I said the Japanese yen, you know, the currency that has Gov't debt coming out its ears, the currency that has a Gov't intent on getting the currency weaker, the currency that has a Gov't that announced the largest bond buying program, ever, and the currency that has zero interest rates, and a 2 decade long economic funk. So, why have traders taken the yen higher? Ahhh grasshopper, no matter what the Gov't wishes for a currency, the markets have deeper pockets. And at least for a while the markets can hold off the weakness the Gov't wishes for its currency. And the markets can point to yen still being a “safe haven”. Safe Haven, Schmafe Haven as far as I'm concerned!
Over in Switzerland, the franc is still tied to the euro with a floor of 1.20 on the cross. There continues to be a whispering campaign to widen that floor to 1.30 or 1.35. But for now 1.20 remains in place. Speaking of the floor that was put in place a couple of years ago. Remember how the wife of then Swiss National Bank (SNB) President, Hildebrand, made all that money on selling francs ahead of the announcement of the floor and eventual devaluation of the franc? Well. it was announced yesterday, after a two years has passed and most people have forgotten about the whole mess, that Hildebrand won't face further investigation, as FX transactions aren't covered by Swiss insider regulations. Are you kidding me? Have the Swiss taken a page out of the U.S. book that allows price manipulation without regulation? I'm shaking my head in disgust.
So for your listening enjoyment. We have 3 Fed Heads speaking today, including Big Ben Bernanke. Bullard and Rosengren are the other two that will mesmerize their audiences with powerful speeches. Hey, did I tell you I have some swamp land to sell you? Seriously though, I doubt we get much from any of these speeches for the subject matters aren't market moving in themselves. But who know? Maybe somebody asks a question that spurs a market moving response.
So.. Just to prove a point that the Currency Wars have tried to point out, and that I've pointed out to readers for over 12 years, that countries that need to increase their manufacturing visa-vi increased exports know that they can achieve this by debasing their currency. Yesterday, the U.S. ISM Manufacturing Index for September, rose even higher than expected to an expansion number of 56.2. In May of this year, manufacturing was contracting with an index number of 49.0. Since May the index has risen 12%… Since May the dollar index has fallen 4%… you need one to fall to have the other gain. Unless, we, as a country, want to start working for a whole lot less, so that our exports can compete even more!
The U.S. data cupboard is pretty much shutdown with the PS going on. That probably means there won't be a Jobs Jamboree this Friday, as previously scheduled. Oh Shoot Rudy! I really look forward to the Jobs Jamboree and the farce that the jobs report has become. NOT! So, what will the markets do without cooked books to review?
Before I head to the Big Finish today, I wanted to thank my friends over at the 5 Minute Forecast. They thought enough of something I said yesterday, to add it to their great daily letter! My friend Addison Wiggin started the “5”, and it's now put together each day by Dave Gonigam, and once again I thank them for thinking that what I said was “5-worthy”.
For What It's Worth. I saw this on Ed Steer's letter this morning that he got from a reader, and thought it played well with all the stuff I've been telling you about China over the years. it's from the website: www.therealasset.co.uk should you want the whole article, for I only have room to add a snippet. It's titled: “How China is taking over the world, one gold bar at a time”
“The year 2013 in the gold investment market will be remembered as the year of China, so we've produced a stunning info graphic detailing China's great golden rise to power.
In just a few months the world's largest country will overtake India as the biggest consumer of gold and its gold market continues to break records.
A country that already mines over 400 tonnes of gold a year, China still demands more physical gold no matter the price. Between January and July this year the Shanghai Gold Exchange delivered more than 1,333 tonnes to gold investors.
In the last 100 years China's gold mine productivity has climbed from just 4 tons of gold in 1949 to an expected 440 tons this year, none of which is exported. Hong Kong imports have been over 600 tonnes this year alone, but still more gold is demanded.
Whilst it may appear that China has exploded onto the gold scene this is by no means the case. China's ancient monetary history is well documented. They are the world's oldest scientists when it comes to different forms of money, having been the first to experiment with paper money and different metallic standards. Therefore during an international financial crisis one would imagine that the country with the longest and most diverse monetary history would be the place to turn to for direction.”
Chuck again. Yes, nothing new to long time Pfennig Readers, just affirmation of all the stuff I've been telling you about how China is hoarding Gold. And don't forget it was I who first put this idea in your head. That China will back the renminbi / yuan with some percentage of Gold when they decide to float and make their currency convertible, which in my opinion will make the renminbi/ yuan the most attractive currency in the world.
To recap. Day 2 of the PS begins today. Yesterday saw a huge takedown of Gold once the U.S. traders arrived at their desks. Oh, and with the PS going on, there's no one to at least appear to be regulating commodities. Aussie Trade Balance goes the wrong way, Berlusconi needs to go away, Hildebrand won't face charges, and no Jobs Jamboree this Friday are all discussed this morning.
Currencies today 10/2/13. American Style: A$ .9345, kiwi .8235, C$ .9670, euro 1.3520, sterling 1.62, Swiss $1.1050, . European Style: rand 10.1240, krone 6.0185, SEK 6.3940, forint 219.55, zloty 3.1230, koruna 18.9370, RUB 32.30, yen 97.40, sing 1.2515, HKD 7.7545, INR 62.46, China 6.1480, pesos 13.19, BRL 2.2155, Dollar Index 80.15, Oil $101.75, 10-year 2.63%, Silver $21.27, Platinum $1,386.80, Palladium $717.64, and Gold. $1,294.00
That's it for today. NL Playoffs are set, The Cardinals will play the Pirates starting tomorrow afternoon, with the Braves taking on the Dodgers. Happy Birthday to our newest trade desk member, Dane Moody. A tough day for yours truly yesterday, and today is not starting out like seashells and balloons, but I'll get through it. I go today to have my “eye shell polished”. Always an interesting hour. I just received an email from who knows where, that has a subject line of: “The “Holy Grail” of Cancer Treatment Revealed”. Of course to find out that that is, I would have to listen to a 40 minute dissertation on why I should listen to this person, and then sign up for their newsletter that costs “X”. What a bunch of dookie! If you know the “holy grail” to cancer treatment shout it out loud! Share it with the rest of the class! These things just drive me to yelling at the walls! And with that. I think I had better get this out the door. I hope you have a Wonderful Wednesday!
EverBank World Markets