In This Issue.

*  Manufacturing around the world slow down.
*  Dollar begins year in the driver's seat.
*  Latvia becomes 18th member of Eurozone.
*  Richard Russell on this Thursday!

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

Same Old Start To A New Year!

Good Day!  And a Tub Thumpin' Thursday to you! And Welcome to January and 2014! I hope your New Year's celebration went well, and you had fun. I watched football games and the ball drop on TV. This new year, should bring us a lot of excitement in the markets. Which way, I don't know. I know, I bet you're saying, “But Chuck, I thought you were Mr. Know-it-all”. Well, thank you, but no. I have my thoughts, but given the way things went in 2013, when all signs pointed to dollar weakness, didn't hold any water, I have to back off, put my head down and go to work in 2014.

The year is starting off, currency trading-wise, just like the last 5 years have started off. Each of the last 5 years, we've seen the euphoria running rampant on the prospects for the U.S. economy, and each year, that euphoria has backed off by June. This time though, the whispering campaign began around August, for a strong U.S. economy. So, maybe after 5 years of trying, the so-called experts can get it right!

So, with the year beginning with an upbeat attitude for the U.S., the dollar, as it has the last 5 years, is trading higher initially on that upbeat attitude. That is against the currencies. Against Gold, the dollar is getting sold, with the shiny metal up $18 this morning. I can tell you that the Gold traders are seeing the PMI's (manufacturing indexes) from around the world, and as I said last month when they all ticked up, manufacturing worldwide is recovering.. So, let's begin there, knowing up front that the dollar is stronger this morning against most currencies, except Gold.

We'll start with China, who batted leadoff on the PMI prints. China's December manufacturing index printed at 51.0, which is a tad lower than the previous month (51.4). China did experience a slowing of the economy in December, remember, Chris telling you about the injection of funds the Gov't made to boost the economy?  So, not too disappointing here, but it did give the People's Bank of China an excuse to weaken the renminbi for a day.

The Eurozone manufacturing index printed at 52.7, which was the same level it printed in November. Germany's index printed at 54.3. It was the rest of the crazy cousins in the Eurozone that brought the total number down to 52.7.  The euro is down by ¾'s of a cent this morning, having slipped back below 1.37. I think that the fact that countries like France are having major problems right now, is the thing weighing on the euro, as we start 2014. But like I've said a couple of times in December, I think things will continue to go in the right direction for the euro in 2014. Don't let the first week of trading in 2014, set your mind for the rest of the year, folks. Like I said, this has gone on the past 5 years!

They also printed a PMI manufacturing index in the UK overnight, and the UK index disappointed, but still remained with a  strong expansion number of 57.3 falling sharply from November's moon shot number of 58.1. I have to think again about my previous thought that manufacturing is strong worldwide. Sure the numbers are good, but in all cases, they were not as good as November's numbers. We'll have to come back and check this again next month, as it could have been just a slowdown in December, due to the season, when a lot of plants close during the month for extended periods.

Shoot Rudy, even the manufacturing countries of Norway and Sweden saw their PMI's drop in December from November levels. And yes, the indexes still indicate expansion, one has to question the slowdown in December.  Both Norway and Sweden's currencies are weaker today on that slower manufacturing data.

In Australia overnight, they printed their latest home price index, which showed that home prices were up 1.4% in December from November. And thus illustrating the problem that Reserve Bank of Australia (RBA) Gov. Stevens, has that I highlighted earlier this week. The housing and consumer inflation are rising (consumer inflation last printed at 2.1%, which is over the 2% target the RBA has for inflation), and Stevens would love to hike rates to keep this rising inflation under control, but if he hikes rates, the A$ would once again show strength, and right now, Stevens has decided that the fight he thinks he can win is getting the A$ weaker. If he can get it down to around 85-cents, then he could think about hiking rates.  But the other fundamentals in Australia are proving that it's not going to be easy to get the A$ much weaker. But usually when a Central Bank points to where they want a currency, and the markets don't want to fight them, the Central Bank usually gets what it wants. Right Brazil?

The Japanese leaders will eventually get what they want for yen weakness too. Bank of Japan Gov. Kuroda, said last night that he's not interested in any talk about scaling back stimulus for the next two years or until inflation stabilizes at 2%…  That's right, tell it like it is Kuroda! You are not interested in any talk about how all this stimulus is going to ruin the yen.

So, the first snowy trading day of 2014, is all about dollar strength. And that won't change today, given the forecasts for the U.S. PMI, which is forecast to print at 56.8  (but down too, from 57.3) Do you see a trend here with PMI's?  I see said the blind man as he spit into the wind, it's all coming back to me now!

I was using a function on the Bloomberg that gives me the Central Bank rates from around the world.  There's not a lot to look at if you're looking for higher yields. Australia, New Zealand, Brazil, Mexico, S. Africa, and India, are just about it, unless you're willing to go to a 3rd world country, and even then you're not going to hit a home run with yield pickup.

Did you see that the Eurozone has a new member? The tiny Baltic nation of Latvia joined the Eurozone and began using euros yesterday, bringing the total membership of the Eurozone to 18.  This is no home run for the Eurozone, shoot, it's not even a single. Latvia will the poorest member of the Eurozone, and has never recovered from the financial meltdown of 5 years ago.. Exports and strict adherence to austerity plans got Latvia back to square one, but still have a long way to go before they are running on all 8.

And then Gold. When I came in this snowy morning, the shiny metal was trading at +$20, 20 minutes later it was +$18, and now it's +$17, so slipping on the snow covered roads I guess!  You know me, I don't trust any slippage in the shiny metal folks. Sure I would like to see Gold prices higher, but the price isn't that much of a concern to be as the belief right now that economies like here in the U.S. can be controlled through money creation (QE). Until that changes, both metals and currencies will suffer, but when it does change, and it will, the return to both metals and currencies will be something to observe!  You certainly won't want to be entering those asset classes when the rest of the world wakes up to the fact that economies can't be controlled with money creation. That's when you'll want to know that you bought when they were weak, and now all you have to do is sit back, and smile.

I already told you about the PMI print from the U.S. today, but the U.S. data cupboard has more for us today, like the usual Thursday print of Weekly Initial Jobless Claims, which after briefly falling below 300,000 last month, has climbed steadily back to around 340,000. And we'll see Construction spending for December. Most people let these 2nd and 3rd Tier data prints slide by without notice, but I think you can always find some good information from them.

Before I head to the Big Finish today, a dear reader sent me a link to a story that while reading it I found this ditty by Alexander Tyler, the 18th century historian and jurist:

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.”

Chuck again. I would think that we're somewhere between the selfishness to the dependency sequences. pretty scary, eh?

For What It's Worth. Once again we are blessed with a snippet of an interview with the one and only Richard Russell. He was interviewed over at King World News, and if find his latest thought to be quite interesting.. Here's Richard Russell.

First is his thought on Bitcoin. “As I've been saying, the year 2014 will be a year of tectonic changes.  Bitcoin currency is becoming acceptable by an increasing number of organizations.  Bitcoin is a menace to the phony dollars that are pumped out by the Fed.  I know that the Fed wants to have a monopoly on the production of US money.  Therefore, Bitcoin is a menace and rival to the Fed “dollars.”  Therefore I expect the Fed to attempt to outlaw trading in Bitcoin.”

And then his thought on Gold. “Pity the Fed, besieged by Bitcoin and Chinese yuan.  Bernanke will be happy to get back to South Carolina and out of DC … Will the Treasury have the nerve to re-set the price of gold to $10,000 an ounce?  And do we have enough gold to make a re-set worthwhile? 

If it turns out that the US doesn't have the gold it claims to have.  We could be looking at the biggest scandal in economic history.  If we have all the gold we say we have, where's the damn audit? The Fed continues its vain fight against the forces of deflation.  To create inflation in one fell swoop, all the Treasury has to do (following FDR's example during the Great Depression) is unilaterally re-set the price of gold to some high number.  Who would object?  Only the gold shorts and maybe the Fed since it would devalue the phony dollars that the Fed creates out of a computer.” – Richard Russell

Chuck again. I just love it when I can find stuff from Richard Russell. He's been tracking and writing about markets for a long time, folks, and I think he's like that old E.F Hutton commercial. When Richard Russell talks, people listen!

To recap. It appears that we're starting 2014 just like we started the last 5 years, and that's with euphoria over the prospects of a strong economy in the U.S. pumping life into the dollar.  PMI's printed all over the world overnight, starting in China and will end here in the U.S. this morning. All of them are still expansionary, but. at a slower pace than the previous month. Does that tell us anything? Not yet.

Currencies today 1/2/14. American Style: A$ .8850, kiwi .8145, C$ .9390, euro 1.3665, sterling 1.6495, Swiss $1.1095, . European Style: rand 10.6425, krone 6.1555, SEK 6.5110, forint 218.30, zloty 3.05, koruna 20.09, RUB 33.05, yen 105.40, sing 1.2685, HKD 7.7540, INR 62.26, China 6.0990, pesos 13.15, BRL 2.4025, Dollar Index 80.53, Oil $98.35, 10-year 3.02%, Silver $19.94, Platinum $1,391.38, Palladium $722.05, and Gold. $1,217.02

That's it for today. Well, as I've mentioned a few times throughout the letter this morning, it's a snowy morning here in St. Louis. I did NOT enjoy having to brush the snow off my car this morning, while our camper sits in the garage! Note to self. find a place to move the camper! That was quite the Fiesta Bowl game last night, eh? Love those high scoring games! Alex goes for an MRI on his knee today, he's been hobbling around, with a knee brace on, I asked him if he regretted his decision to wrestle. He would have nothing to do with that! I had new scans on Monday, and find out next Monday what they found. Everyone keeps telling me how good I look. I think they are just hoping that I'm fine, and just say that, because I sure don't feel “good”.  Get well quick thoughts to our friend Toni Moody, who had outpatient surgery the other day. And with that. I hope you have a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets