In This Issue.

*  Dollar is back in driver's seat this morning.
*  Commodity Currencies get a double hit!
*  Chuck calls NY reaction to gold rally bang on!
*  Iron ore price falls -3.8% overnight! OUCH!

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

The Senate Votes Down The Keystone Pipeline Bill.

Good Day!…  And a Wonderful Wednesday to you! Well, it's still cold for this time of year here, as it is in most of the country, but not AS cold, so we have that going for us! Shoot Rudy, by this weekend, it's supposed to be back to normal (50 degrees) and have thunder storms! Strange weather for sure! The Big Boss, Frank Trotter, sent me a note from the road yesterday, that addresses the weather where he's holding court these days, so we'll check that out later in the letter. The dollar is back to whacking the currencies this morning, except pound sterling, renminbi, and Gold. The euro is basically flat this morning, so we have all that to talk about, and more, so strap yourself in, and grab that cup of coffee and let's go!

Well. Front and Center this morning is news overnight that iron ore prices fell -3.8%, making the losses this week -6.5%… Any other questions on why the Aussie dollar (A$) is getting sold again this morning? This drop in iron ore prices has opened up Pandora's Box of theories regarding China, and we've discussed this many times, as China goes, so goes global growth, and the A$ is the proxy for global growth. You know, knee bone is connected to the shin bone, and so on. One of the theories going around is about “peek Steel”, for China. Reminds me of stories that went around about 10 years ago, regarding “peek Oil”. Those were proven to be incorrect.

You know. For the most part, the dollar is kicking tail and taking names later this morning, but it's strange that the dollar is so strong against the A$, kiwi, C$, yen, sing and others, but not the renminbi, pound sterling, euro and Gold. I can't find anything that would be considered the “real reason” these currencies have decided to remain steady Eddie against the dollar this morning. There are “little stories” all about the news wires, but nothing of significance, so we'll just put it down as it is what is.

I do know, and I told you about this last week, what's going on in C$ this morning. After passing the House vote last week, the Keystone Pipeline bill was defeated in the Senate last night. It was a cliff hanger outcome, but the bill was defeated nonetheless, and that, as I told you last week, would play hell with the C$ / loonie.  The Bill lost by one vote. I told you about my experience with losing an election by one vote, so I know how the Bill feels this morning. No wait, Chuck! The Bill doesn't have feelings you dolt! OK. Let's see. So, I know how the Bill's sponsors feel today. There! Yes, but why didn't you just say that in the beginning, and not have to have your alter ego have to correct you!

The Japanese yen has fallen to a 7-year low VS the dollar overnight. I've spent far too much time talking about Japan and the yen in the past two days, so I'll keep this brief. Yen is trading around 117.45 right now, and I fully expect yen to fall to 120. And from there no one knows where it goes, for 120 represents a strong line of resistance, so if yen gets to 120 and claws its way through the figure, yen will be taking a long ride on the slippery slope. I suspect that it will bounce around 120 a few times before either weakening further, or stabilizing.

The FOMC Meeting Minutes will print this afternoon, and that's a BIG Event today. The markets want to see if the Fed members are all singing from the same song sheet in the minutes, or were there some detractors from the Fed President, Janet Yellen?  The markets would also like to see if the words, “considerable time” continue to be spoken in the minutes. For if they aren't, the dollar will continue its rally today. If they continue to be spoken, then the dollar will lose its rally legs. Words. It's difficult to believe that simple words can decide which way a currency moves, don't you think? Singing words, words.. Between the lines of age. (Neil Young)

I would prefer that the Minutes contained more discussion about her feelings regarding the “slack in the labor force” that she briefly talked about the previous month, but then glossed over after the last Fed Meeting. I don't know Yellen, but I feel as though, from what she has said, that I know what she's thinking, so this is just a guess on my part folks, so don't go to the bank on this, but if you asked me, and I know you didn't, but you are reading, so that's half the battle. I think Yellen sees the Labor Force Participation Rate, and the ratio of employed individuals to the population of employable people, and she is freaking out!

Here's a little ditty that I came across some time ago, but have failed to pull out of Bullwinkle's Hat until now. Think about that Labor Force Participation Rate (LFPR). It's at low levels that we haven't seen since the Carter Administration. Hmmm. Well, here goes, get a pen or pencil and write this down because this is genius by me. In the 1970's, two income families hadn't become the norm yet, so that makes today's LFPR even worse!  I know you were expecting something like E= mc2   (I don't know how to put the 2 above the c, but you get the picture)

Alrighty then. back to business. Well, I told you above that pound sterling was stronger this morning, and the only thing I can attribute to this rally, is that the Bank of England's (BOE) meeting minutes printed and showed that two members voted for a rate hike. If this is what has sterling on the rally tracks this morning, then you can expect it to be derailed at some point going forward, for this is NOT the stuff that currency rallies are made of!  You see, the two pro-rate hike members have voted that way for months now, as they took BOE Gov. Mark Carney's word about removing accommodation, serious. And now they are backed into a corner, they can't change their vote now, they would look ridiculous. no wait! Don't they look that way voting for a rate hike that's not going to come?

My colleague, and longtime friend, Jack Stapleton, sent me a note yesterday that he received from his old buddies at Standard Charter Bank (SCB), and in the note the SCB guys think that the currency markets are going to begin to change the way they get to price discovery. The SCB guys think that the bank dealers will become secondary, and the hedge funds, and large institutional investors will take over deciding which direction the currencies go. No more whimsical wild swings from “news”. Well, I highly doubt that will happen any time soon, but it is an interesting take on the $5 Trillion a day market.

And while I'm talking about the direction of currencies going forward, this seems to be a good place to let the Big Boss, Frank Trotter, take the microphone. Here's Frank!  “It's a cool overcast day here in Clearwater Beach.  Down here they call it freezing.  My Uber driver from the airport was clearly amazed or upset with the weather.  Thirty-nine tonight he said, disgusted.  The Gulf is gray and ugly.  Not expecting a storm or really bad weather but a breeze blowing out of the west has kicked up a few white caps and made the beach look uninviting.  A lone sailfish is doggedly beating slightly up-wind about 3 furlongs offshore as if to say 'I'm here in vacation dag nabbit and I'm going sailing.'  Further out, maybe 20 miles I can see blue sky.  I can't really tell if this is a harbinger of better times, or just a sunny cold day.

Like the weather here the markets have been without any real direction the last couple months.  Drifting prices on everything except equities have made it clear to me that Mr. Market has lost his rudder.  The ten year Treasury sits near 2.30% but just a few weeks ago displayed really unbelievable volatility intraday in reaction to some Fed comments; I can imagine traders hung out on a price standing and begging for someone, anyone, to give them a reason for the next tick direction.  Currencies too have drifted a little lower against the US dollar for the most part but have stayed well inside the channel markers that have been set since 2010.  So 'what's it gonna be boy?  Yes or no?', higher or lower.  Right now I'll just keep beating against the wind waiting for the sun to come back out.”

Well, I've said this before, and I'll probably end up saying quite a few more times in my life as a newsletter writer. “That Frank, can write!”   Frank also tells me that I have a fan in Clearwater, named Penni Hibbs. Well, that's great! I hope Penni gets a kick out of seeing her name in the Pfennig this morning! I hope to meet you face to face some day.

Uriah Heep is playing their song: July Morning, on the IPod right now. This is the song I use on the first day of July as tradition calls for. I just wish the weather outside right now was back to July morning-like!

OK. The Chinese renminbi was allowed to appreciate overnight, and has moved below the 6.14 figure. I know, it doesn't seem like that is possible, given all the days of weakening the renminbi / yuan by the Chinese. But, think about it. we all know the Chinese are playing this game of 1. Introducing volatility to the renminbi, and 2. Teach the markets a lesson. But in the end, they want the currency to be stronger, for there's no way they can push the remove the dollar reserve system envelope to the edge, if their currency is weak. And besides the President was recently in China, we all know how the Chinese like to dress up the renminbi for guests.

HSBC, (Hong Kong Shanghai Banking Corp) a HUGE player in the markets by the way, says that the Swiss Gold Referendum will be more about how the price of Gold reacts VS what happens to the Swiss franc.  I discussed this a couple of weeks ago, with you all, and came to the same conclusion. Hey! You don't think that HSBC boys and girls are Pfennig Readers do you? Nah, that couldn't be. They are too far up the pay grade than me on that one! But basically the thought, just to remind you, is that IF the Swiss vote for the Gold Referendum, the SNB will have to buy about 1,700 tonnes of Gold, about the same as the global annual output, and to do so, the SNB will have to sell reserves. And not euros! But probably more dollars than anything, and that's why I think the price of Gold will benefit.  You see, there's more to the markets “knowing” that the Swiss HAVE TO BUY Gold, than discovering that the Chinese, Russians and Indian buyers backed up a truck, stealth-like to buy Gold.

So. I so called the NY markets' reaction to Gold's $16 rally yesterday morning! But lunch time the shiny metal had given back over ½ of its early morning gains, and had fallen back below $1,200. It's become so obvious to me, and should be to the regulators, what's going on here, but still nothing.

The euro has up a bit and now is down a bit, but basically flat on the day, which is interesting given the dollar's gains VS the Commodity Currencies. So, I would think that the lead story in today's letter above, regarding the price of iron ore plummeting, is the reason for the Commodity Currency selloff, but that leave the euro holding Steady Eddie.  I always come back to the thought that I've given audiences and Pfennig readers for years now, and that is simply that with all the negativity with the Eurozone, the euro remains a player VS the dollar, so what does that tell you about what the markets truly feel about the dollar?

Well, the U.S. Data Cupboard showed a couple of interesting things yesterday, that the markets really shrug off these days. First, PPI for Rocktober increased .2% VS September, and if you take out the deep decline in gas prices, wholesale inflation increased .4%… That's a HUGE jump in one month folks. I would think it's an outlier report.   And then the Total Net TIC Flows showed that September saw a negative $55.6 Billion come out of Treasuries  by foreigners. But yet, no one thought that this could end up being huge going forward. Well, I'm going on record now saying that if this continues, the Fed will be back to the QE table sooner than originally thought, by me.

Before I head to the Big Finish today. I have a funny for you. Well, at least I thought it was funny. You know, funny ha-ha.  So, Ty sent this to me the other day, and it's a picture of Beijing Square with thousands of Chinese people gathered in front of it. And the text on the side of the picture says: Chinese Citizens Gather In Beijing Square to Watch U.S. National Debt Clock Strike $18 Trillion!

OK. maybe not that funny considering that it was just 13 months ago that we hit $17 Trillion! OUCH!

For What It's Worth. This one's a doozy folks. So Strap yourself in, keep all arms and legs inside at all times, and  let's get through this. Be sure to read my follow up, but then you probably could write it for me, if you're a long time reader and remember what I kept saying during all the bail outs and stimulus.

“Back in May, a group of central bankers and financial analysts met together in Basel, Switzerland and issued a report on the dire state of the world economy. The 2014 Annual Report of the Bank of International Settlements then claimed that the present climate is as fragile and volatile as it was during the Lehman Brothers Crisis of 2007.

Now in September, a no less impressive group of seventy central-bank officials and other monetary experts met in Geneva and issued their own report under the auspices of the International Centre for Monetary and Banking Studies (ICMB). Their message: Something is dreadfully wrong with the way we are dealing with the crisis. The measures being taken to bolster the present, toothless “recovery” are not working.

The very title of the new warning is telltale if not a bit cynical: “Deleveraging, what Deleveraging?” The report claims the logical reaction to any kind of crisis like the 2008 subprime mortgage crisis would be to “deleverage” or radically shed debts. While American households had the good sense to temporarily shed debt (it is now back where it once was at $12 trillion), most governments have not done so. In fact, the report shows that global debt, excluding the financial sector, just keeps on growing, rising some 36% since 2008 to a record 212% of GDP.

The underlying logic behind the policies criticized is an exaggerated fear of deflation. In typical Keynesian fashion, policy makers are actually crafting their actions to provoke higher inflation. They reason that higher debt is easier paid with less valuable dollars and that consumers will spend more now if they perceive higher prices later.”

Chuck again.  Yes. when you kick the can down the road, or play pass the trash with debt, you end up with things worse off than if you just dealt with it to begin with,  that's what Japan is experiencing now, and soon it will be on our shores. And in the end, people will say. “I guess the Austrian way of dealing with 2007-08 would have been better”. For that was what I was saying at the time needed to be administered. But it will have been too late then.

To recap. The dollar seems to have found some terra firma this morning, especially against the Commodity Currencies, who saw their leader, the A$, drop like a rock overnight after the price of iron ore fell -3.8%…  And the C$ gets sold on the narrow defeat of the Keystone Pipeline in the U.S. Senate last night. A couple of currencies like the pound, renminbi, and Gold have carved out some gains overnight, while the euro remains flat VS the dollar this morning. The Fed's FOMC meeting minutes will print this afternoon, and the markets are looking for some clues to when rate hikes will come. I think they'll be disappointed, but that' s just me.

Currencies today 11/19/14. American Style: A$ .8640, kiwi .7865, C$ .8815, euro 1.2535, sterling 1.5670, Swiss $1.0435, . European Style: rand 11.0465, krone 6.7605, SEK 7.7555, forint 242.95, zloty 3.3630, koruna 22.0780, RUB 46.96, yen 117.65, sing 1.3040, HKD 7.7555, INR 61.96, China 6.1397, pesos 13.58, BRL 2.5770, Dollar Index 87.67, Oil $ 74.49, 10-year 2.33%, Silver $16.21, Platinum $1,203.53, Palladium $773.75, and Gold. $1,195.39

That's it for today. Well, one more thing markets-wise, as I was writing, Gold slipped from a positive $3 to a negative $2. UGH!  A double UGH on the Blues performance in Boston last night. UGH, UGH! The College Basketball season has begun, much to the chagrin of our Little Christine (her hubby is a basketball coach), and our teams here, the Missouri Tigers, and St. Louis U. Billikens, were shaky out of the gate, but posted good winds against quality teams in their latest outings, so bully for them!  With Alex at St. Louis U. now, I'll get back to being an all-out Billikens fan. When oldest son Andrew was young, we used to go down to the games on Saturday afternoons buy tickets at the window and watch the games. Back when the late Charlie Spoonhour was coach.. I sat next to Charlie Spoonhour in a bar in Jupiter Florida watching a basketball game years ago, what a treat that was for me! Charlie had tons of great quotes in his life. I always like this one: “We're excited about the coming season- but then, guys on death row are excited too.” – Charlie Spoonhour.  So, with that in mind. I'm glad you read the Pfennig, and I hope you have a Wonderful Wednesday!

Chuck Butler
President
EverBank World Markets