In This Issue.
* BOE & ECB meeting today.
* Euro flat, A$'s down.
* Aussie jobs print weaker than expected.
* Chinese exports grow.
And, Now, Today's Pfennig For Your Thoughts!
Waiting On Draghi.
Good day. And a Tub Thumpin Thursday to you! Boy am I ever in the doghouse at home! I totally forgot to say Happy Birthday to the lovely Rachel Butler on Tuesday! Rachel is oldest son Andrew's wife, and mother of Braden Charles. How could I forget such an important date? I guess I could use the excuse that Tuesday was the day I had the clock faux pas, and everything was off kilter for me that day, but I won't. I'll put it down to a senior moment, and hope that she'll forgive my forgetfulness! So. Happy belated Birthday Rachel!
Every day when I write, I tend to forget things that I was all prepared to say when I sat down at the computer, and later in the day, I have a V8 moment, and remember what I forgot to say! Hey! You think the Pfennig runs long now! Imagine if I remembered to say everything I wanted to each day! HA! Lucky you! HA!
Well, there's all kind of buzz in the markets because Twitter gets priced today on the NYSE. I can actually say that the only time I've ever gotten excited about a stock IPO getting priced was when EverBank went public! Yes, I'm a “homer”. sue me! Other than the Twitter thing, the markets are also buzzing about what will be said this morning, when European Central Bank (ECB) President, Draghi, speaks after the ECB rate decision announcement.
The price action in the euro since the very low inflation report from the Eurozone last week, has been biased toward selling the euro on fears the ECB will cut rates further. Now, no one believes that the ECB would use this meeting today to cut rates, instead they, the markets, believe that Draghi would throw them a bone, and give some forward guidance on rates. In other words, they hope he says something like, “with inflation so low, we will cut rates at the next meeting”. I doubt he gives them anything like that, for I suspect that Draghi is a Pfennig Reader and has read that I don't think that cutting rates any further while rates are already so low, would do any good! Or, maybe, just maybe, because you never know. Maybe, he has economic advisors that have whispered that in his ear. I want to believe it's the former scenario! HA!
So, we begin the day with the euro flat. And waiting cautiously, I might add, for Draghi's press conference. But the Aussie dollar (A$) has dropped about ½-cent in overnight trading. The Aussie Labor Force report was quite weak. Headline employment rose by just 1,100 jobs in October (the markets were looking for 10,000). And the previous month was revised down to 3,300 from 9,100. I know, I know, these numbers would be like removing a bucket of sand from a beach if they were printed in the U.S. But here, in the land down under, these kind of numbers are not good for the A$, for now the markets will be back to the side of the teeter-totter that says the Reserve Bank of Australia (RBA) will cut rates one more time. Earlier this week, the markets were on the other side of the teeter-totter that says no rate cut.
The focus in Australia will shift to the RBA's Quarterly Statement and Monetary Policy that will print tonight. I suspect that even if this report from the RBA leans on the hawkish side, that there will be market participants that continue to hold the A$ hostage to the “one more rate cut” thought. And that simply means that we will continue to watch the A$ flip-flop from up to down every trading session for the near future.
Australia's kissin' cousin across the Tasman, New Zealand, saw their house prices increase in October, adding to the pressure on the Reserve Bank of New Zealand (RBNZ) to hike rates as soon as possible. However, that added pressure didn't help the New Zealand dollar / kiwi, as it traded off in sympathy to the A$ pressure. I would think that this sympathy selling to be short-lived, so an opportunity may exist here to buy at cheaper levels, should that tickle your fancy!
In China overnight, Chinese exports rose 1.7% in October from a year ago. That news inspired the Chinese Gov't to allow the renminbi / yuan to appreciate, which makes 4 of the last 5 days now. I think it's important to show the Chinese Leaders that the currency is ready for prime time. Again, let me remind you that the 3rd Plenum begins on the 9th and runs through the 12th, and at this meeting, Chinese Premier Xi, and President, Li, will attempt to convince the Communist Politburo to continue with the opening up of the Chinese economy, which would eventually lead to the renminbi floating.
I received a survey from one of our currency partner/ dealers yesterday. It was a 10 question survey on Mexico. I started to complete the survey, but then the survey began to take on a “bond” flavor and I stopped. Up to the part where I said that the peso would benefit from the Pact for Mexican reform that the new Mexican president was putting forward, I felt pretty good about the survey. But then they wanted to know how many Mexican bonds I owned. What? Oh well. But the point has been made here on Mexico. Unfortunately, the pesos is so wound tightly to the U.S. dollar.
You know I was just about ready to stick my toe back in Brazil's waters. But the little man that sits on my right shoulder, out shouted the little man that sits on my left shoulder, who wanted me to stick my toe back in the water. Thank goodness for the little man on my right shoulder! You see, the real was going good for a month or two, the Bank of Brazil (BOB) was hiking rates, and the currency was gaining favor with investors again, but then the trap door sprung open again, and down the real went! And guess what caused the trap door to spring open? Well, if you guessed rising debt, which is normally any currency's kryptonite, you would be correct!
The real has fallen through the trap door ever since the Brazilian Gov't announced that the Budget Deficit had swelled in September to 22.9 Billion reals, VS 19.3 Billion forecast. Brazil's deficit to GDP is still “only” 3.3%, but when you talk about these things with Emerging Markets as the title, the ratings agencies get a little nervous, and then they get a little jiggy with their ratings. And that fear of the ratings agencies downgrading Brazil's credit rating because of this swelling in the Budget Deficit, put the real on the run, and it hasn't stopped running. UGH!
Gold is down $4 this morning after gaining $6 yesterday. Every day, I get tons of emails from all over the world on Gold price manipulation. Every last one of these believes that they have the dirty rotten scoundrels cornered. But that doesn't materialize. and it probably never will. The only thing I see happening to correct this pattern is what guys like Eric Sprott, Andrew Maguire, Grant Williams, and others talk about, and that is when the physical demand causes the major disruptions in the COMEX, and the short positions have to be closed. When that day comes, no one knows, but it sure does appear to me that it's getting closer all the time. No wait! Maybe that's just wishful thinking on my part! Yeah, that's the ticket! Wishful thinking!
Speaking of wishful thinking. Did you know that next Monday is Veteran's Day? That means it's a 3-day Holiday weekend for us! I'll talk more about Veteran's Day tomorrow, but for now, my wishful thinking for some time off is coming to fruition!
Before I head to the Big Finish, which is going to be extra long today, sorry, but it has to be talked about. I have a funny for you from Jay Leno, who is actually poking fun at my fave TV show: Duck Dynasty. but I found it funny and hope you do too! Here's Jay Leno! “Members of “Duck Dynasty” are releasing their own brands of wines. Wine experts are saying that it's red wine with varmints and white wine with critters.”
For What It's Worth. OK. I've been doing a lot of reading on the two research papers that the staff of the Fed Reserve Board recently issued on monetary policy. But thought that well respected analyst and writer, Jim Jubak described these papers the best. So, I'm going to give you a couple of snippets here, but then at the end I'll have the link to the full story, that I think you should read so you get the whole picture of the mess the Fed has backed themselves into a corner with.
“The consensus now says this tapering won't begin until March 2014 at the soonest, although the Fed's press release after the October meeting of its Open Market Committee led to a pickup among traders and investors in votes for January 2014.
The Federal Reserve itself, however, has moved on in its worries and plans. While the timing of any taper remains an unsettled issue, planning at the Fed is now concentrating on the endgame.
After building up its balance sheet to a record $3.84 trillion — including $2 trillion in Treasuries and $1.4 trillion in mortgage-backed securities — the big question, and the one with much more impact in the long-term on the U.S. and global economies and financial markets, is how does the Fed sell these assets so it can cut its balance sheet back to normal levels?
The startling answer that's starting to emerge from studies by the Fed's own economists is that selling these assets isn't an option. There is no quick exit strategy for the Fed, these studies argue. The Fed — and the U.S. economy — will be stuck with its current nearly $4 trillion balance sheet for a decade or more.
And that means this Fed-driven market will be with us for years to come.
The Fed owns so much of some classes of assets that it has become the market for those assets. Any significant effort to sell these assets would send prices down and yields up, producing big losses for the Fed.
The political effect of those losses, which would end the Fed's current contribution to the U.S. Treasury, would be something close to a rebellion in Congress.
Therefore, the Federal Reserve really has no option, these studies say, but to hold these assets until they mature in seven or 10 or more years.
Chuck again. I strongly suggest you to take the 10 minutes it will take to read this and let it sink in. And then ask yourself, what does that mean for the U.S. dollar?
To recap. It's all about Twitter today. But guys like me, I prefer to deal with currencies and metals, and that will take the detour around NYC and all the Twitter talk today, and over to the Eurozone and England where the ECB and BOE are meeting while I'm writing. The markets are looking for ECB president Draghi to throw them a bone on forward guidance. Aussie printed a weaker than expected jobs report and the A$ got sent to the woodshed, with kiwi selling in sympathy.
Currencies today 11/7/13. American Style: A$ .9495, kiwi .8370, C$ .9605, euro 1.3510, sterling 1.6060, Swiss $1.0955, . European Style: rand 10.2615, krone 5.9805, SEK 6.4720, forint 219.95, zloty 3.0935, koruna 19.8060, RUB 32.32, yen 98.70, sing 1.2425, HKD 7.7515, INR 62.41, China 6.1450, pesos 13.16, BRL 2.2890, Dollar Index 80.50, Oil $95.01, 10-year 2.64%, Silver $21.80, Platinum $1,469.20, Palladium $759.48, and Gold. $1,315.65
WAIT! HOLD THE PRESSES! The ECB did lower rates to .25% this morning, it was just announced! So forget what I said earlier about the euro being flat and Draghi being a Pfennig Reader! What is he thinking? OK, the kinder, gentler, Chuck isn't going to go on a tirade here about Draghi or the ECB. I'll just say, I just don't get what they are think they'll get out of this move!
I'm muttering to myself right now, lots of not very nice things about the ECB. But it is what it is. and the euro has already lost 1 & ½-cents after the announcement. The rate differential, small as it was VS the dollar is gone.. I shake my head in disgust!
That's it for today. The Big Boss, Frank Trotter, recommended a movie to me a couple of weeks ago, and so I got hold of the DVD and watched: Searching For Sugarman. What a great movie for someone like me, that lived that same life at the same time, early 70's, trying to make it in the rock music business. Pretty cool. and a great “feel good” story. I watched Alex swim his best times last night, which put him in the finals tonight in his two strokes, back and butterfly. And he received some great news yesterday, he was accepted into the physical therapy program at St. Louis University! That was his first choice, so I guess we don't have to look at any other colleges! I'm very proud of what he has accomplished with his academics, music, sports and community service. I don't know he does it! OK. Time to go! I hope you have a Tub Thumpin' Thursday!
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