In This Issue.

*A$ soars on no rate move announcement.
*Other currencies attempt to recover.
*Data cupboard is cleared for election day.
*Gold posts two-day rally.

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

RBA Leaves Rates Unchanged!

Good day.  And a Tom Terrific Tuesday to you! Election Day here in the U.S. I had lunch with a good friend yesterday, and we talked about the election, the way I can’t talk about it here, but one thing I did say was that “it’s difficult to beat an incumbent”. The last two incumbents to lose their reelection were Carter and Bush. And both were tied to economies that were going nowhere. And that’s all I’ll say about that!

OK. A lot of people send me notes all the time asking me what I think will happen to the price of Gold if Gov. Romney wins. I think the Big Boss, Frank Trotter, addressed this in his Sunday Pfennig & Pfriends. But, for those of you who missed that. I say it in my own words. I don’t think anything changes with the direction of the price of Gold, until. the markets have a warm and fuzzy that the U.S. is dead serious about balancing the budget and cutting the debt.

Yesterday, the bias to buy U.S. dollars was strong, most of the day, although I did see the euro attempt to rally and got close to 1.28. Overnight it hit, albeit briefly 1.28, but has since slipped back below the figure. The best performing currency overnight is the Aussie dollar (A$). So, let’s go to the tape to see what’s up with the A$!

The Reserve Bank of Australia (RBA) surprised the markets last night, and decided to keep interest rates unchanged. Recall, the markets had priced in a 25 Basis Point (1/4%) rate cut. So, all those trades that represented the “priced in”, which were sales, had to be reversed. And those buys of A$’s led to more buying, and before you could skip to my Lou, the A$ was flying through the $1.04 handle!   But it wasn’t just the actual announcement of no rate change. The accompanying statement by the RBA was quite hawkish. Let’s listen in.

RBA Gov. Stevens had this to say. “interest rates have been cut sharply over the past year and the RBA acknowledges that rates for borrowers have declined to be clearly below the medium-term averages, and impact of these rate cuts take time to work through the economy.”  I have to tell you folks, this sounds to me like Mr. Stevens is telling us that there will be no rate cut in December, and that the rate cuts that are priced into to 2013, are not done deals.  This also tells me that without the threat of a rate cut hanging over the A$ like the Sword of Damocles,  I would look for the A$ to continue to push the envelope of a higher level.

Having said that, you all know that it’s just my opinion, and I could be wrong. The thing I want to point out that could be a roadblock to higher levels for the A$ is the problems in the Eurozone. And then sprinkle in the potential problems of the U.S. election results. I don’t mean who wins, I mean, if the vote count is as close as all the polls are saying they are.. There is the possibility that we could have a repeat of 2000. I sure hope not! That was not a good time here in the U.S..

We’ve seen the A$, which is the proxy for global growth, get taken to the woodshed on Eurozone & U.S. problems. But, for now, it’s all seashells and balloons for the A$… This non-move by the RBA sent the A$ and bond yields higher. Long time readers know that I used to be a foreign bond trader. Talk about fun! Not that what I do know isn’t fun. but at that time, when there was no Eurozone, and you could arbitrage Spain Vs Germany and so on, there was a lot of things going on, which kept me on my toes. (now, those of you who have seen me, that’s funny. on my toes!)

The reason I talk about this stuff is to point out something. When I saw that bond yields rose on the RBA non-move, I looked at a simple 5 year Aussie Gov’t bond, that beats the U.S. Treasury by over 200 Basis Points (2%) in yield. (this is not a solicitation of Aussie Bonds, just pointing out something) I hear people all the time talking about how there’s no yield in the U.S. so they flock to U.S. stocks.  Well, there’s always yield to be picked up folks, you don’t always have to stay with U.S. stocks. 

Hey! Did you know that this past weekend there was a G-20 meeting? Whoop-de-do, right?  They met, had boondoggle, all got massages, played some board games (like Candyland!) and then came out with the same old tired, and stale statement about their “commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals.” 

Hey! I wish they Could Do Something about getting Gov’t’s out of the currency managing business, and allow fundamentals to rule. But that CAN’T! So, they can talk about this all they want, what’s their plan to implement this so-called commitment? There is none, folks. This is all words. and as my dad used to tell me. money talks. B.S. walks.

There’s really no data of significance around the world today, which clears the desk for the U.S. election.  Tomorrow will be big, in that, hopefully we have a clear-cut winner here in the U.S.  and over in the Eurozone, we’re supposed to get the Greek Parliament vote on the latest austerity package. That Greek vote could be a real market mover. right now, it appears that it will pass by a thin margin, and news of that has spread throughout Greece. You can guess how the Greek citizens are reacting to that news.  Watch it closely folks, for one day sons and daughters, you’ll see that kind of stuff going on here in the U.S., that is. as long as our leaders believe that we can print, and print and print, without any slap on the wrists from the markets.  and they can continue to deficit spend their way through all their promises. and then one day, we wake up and find that we can’t do that any longer. Uh-oh. what to do now? Oh, the things that Chuck told you to do long ago!

The price of Gold is up $8 this morning, adding to the $4 gain it posted yesterday.  I saw in Ed Steer’s letter that the price manipulators (PM’s) (he actually names them) now hold short positions in Silver that amount to 91% of the Commercial net short position, and 65.7% in Gold. But I’m not going to let that ruin my feelings toward Gold and Silver. One of these days, these PM’s will get theirs. Until then, we push the envelope for physical metals. and make it difficult for the PM’s.

Ok.. I have two pieces for the TTWT portion of the letter today. first we have a story about an Australian judge that is going after the rating agencies, and second, we have the results of the latest Prosperity Index.

Then There Was This. from Bloomberg. “Ten thousand miles from Wall Street, a federal judge in Australia has issued what appears to be the first ruling of its kind, holding a ratings agency liable for the “misleading and deceptive” seals of approval it stamped on complicated investment products in the years leading up to the financial crisis.

While banks and other institutions have been fined for behavior contributing to the crisis, this is the first time that a ratings house-whose “AAA” grades provided essential cover to those selling dross-laden assets as gold-has been found legally accountable, too.

Standard & Poor’s (MHP) gave AAA ratings to two complex products known as constant proportion debt obligations in 2006, indicating that they were highly reliable. Twelve local Australian councils that claimed they lost more than 90 percent of their roughly $17 million (U.S.) investment when the products collapsed are now entitled to damages, Justice Jayne Jagot ruled from Sydney’s Federal Court.”

Then There Was This Deux. This past weekend, a friend of mine (thanks Dennis!) forwarded me a letter from the folks over at the Sovereign Society (remember I used to write for them?). The letter outlined the latest 2012 Prosperity Index.  And guess what? The U.S. fell out of the Top 10!  In fact, they are now #12.  Here’s the list of countries ahead of us, in order. So, Norway is number 1, and so on..

Norway, Denmark, Sweden, Australia, New Zealand, Canada, Finland, Netherlands, Switzerland, Ireland, and Luxembourg.  

After seeing the list, my friend asked me “isn’t Ireland one of the PIIGS?”  Yes. it is. So, what does that say about the U.S.?    It’s pretty clear to me that the people that put this list together each year, see the people of the U.S. giving up. The writer of the article, said that the researchers found that U.S. citizens no longer believe that hard work pays off.   WOW! That’s pretty harsh isn’t it? 

To recap. The dollar bias remained in the currencies yesterday, but overnight, the RBA left rates unchanged and then sounded hawkish in their statement, thus damping the thoughts of further rate cuts. The A$ is the best performing currency overnight as rate cut bets (sales) had to be reversed.  It’s election day in the U.S. and basically no data from the data cupboards around the world. The Greek Parliament votes tomorrow on the latest austerity package that is rumored right now to be good to go on the thinnest of margins.

Currencies today 11/6/12. American Style: A$ $1.0440, kiwi .8285, C$ $1.0065, euro 1.28, sterling 1.5985, Swiss $1.06, . European Style: rand 8.7085, krone 5.7170, SEK 6.6875, forint 220.35, zloty 3.2185, koruna 19.7480, RUB 31.45, yen 80.15, sing 1.2230, HKD 7.75, INR 54.43, China 6.2450, pesos 12.99, BRL 2.0335, Dollar Index 80.67, Oil $86.05, 10-year 1.70%, Silver $31.41, and Gold $1,692.70

That’s it for today. Did you know that the candidate that has carried the state of Ohio has won the White House for the last 12 Presidential Elections? The last time that the winner of Ohio did not win the White House was Richard Nixon in 1960.  WOW! Have you checked out the Pfennig Blog site yet? will take you there. it’s the Pfennig, all jazzed up! Can you believe that Thanksgiving is near?   That’s crazy, and the only thing good in November! Well, I find it to be good now. I used to despise the day. Long story, wont’ bore you with it. Soon the Christmas decorations on businesses will be going up, and I’ll love seeing those! Well. go out and vote today. This is what so many brave soldiers have fought for throughout the history of this country. for your right to vote.. So, don’t disappoint them!  Every vote counts.  I should know, having lost my reelection as an Alderman by 1 vote!  And with that, I’ll get out of your hair for today. Thanks for reading the Pfennig, and I hope you have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets