In This Issue.
* Currencies rally!
* But is it no more than a short squeeze?
* Swedish PMI surprises with a strong print!
* Russia keeps pressure on to replace dollar.
And Now. Today's A Pfennig For Your Thoughts.
Waiting On The ECB And Draghi.
Good Day! . And a Tub Thumpin' Thursday to you. I'm not feeling so Tub Thumpin' this morning. Once again a put the kiss of death on something. I was talking to a friend of mine yesterday, and I told her that I had been feeling pretty decent, and that I hadn't gotten sick to my stomach in about a week. Well, that ended late last night, and has carried over to this morning. UGH! I guess I'll have to hope that Our Little Christine, brings in a cake donut with icing this morning! And maybe then my stomach will settle down.
The dollar sure settled down yesterday, and while I'm not a fan of starting off the letter with talk on data, the data played a Big part in turning things around yesterday, so here we go. The U.S. Data Cupboard was responsible for a brief rally in the euro yesterday, as the U.S. ISM Manufacturing Index dropped in September to 56.6 from 59 in August. That's a large drop for this data series, and really has me thinking that the lack of liquidity that I keep warning you all about that is coming, is already taking hold in the economy, and that the rally in dollar is probably causing some problems for exports too. Just like the knee bone is connected to the shin bone, manufacturing is connected to exports, and the inability of exporters to compete because of a stronger dollar will cause manufacturing to slow down.
So, you dollar bugs, you might want to think twice about leaving me behind, make up your mind, about what you're gonna do. No Wait! This is no time to sing Poco songs Chuck! You dollar bugs might want to think twice about how strong you want the dollar.
But there was something else yesterday that I think pushed through some queasiness among the dollar bugs, and that was the fall in Construction Spending in the U.S. For August, U.S. Construction Spending fell .8% VS July. This was far below the consensus for the data of which was for a gain of .5%… And July's data which previously printed at +1.8% was revised downward to +1.2%… I find this to be interesting and hope you do too, for just a month ago, homebuilder's Confidence was supposedly soaring. How can that be? I just think that all the data this week has not been stellar, and points to a much weaker 3rd QTR GDP here in the U.S. than what was printed in the 2nd QTR, and if things go the way I believe them to go, (and I'm not alone here, both Richard Duncan and James Rickards are in agreement here, the 4th QTR will be even worse!
So. The dollar rally has been put on hold for now. The euro is gaining again this morning, not by a Huge amount, but any rally the euro can mount these days seems HUGE to me. I find the rally this morning to be interesting, given that the European Central Bank (ECB) meeting is going on right now, as my fat fingers go to town on this keyboard! That's right, you should see these fat fingers fly across this keyboard when I get going! But, we can talk about that some other time, right now, the important thing going on is the ECB meeting. I've beaten this meeting up this week, so I guess I'll just repeat that the ECB, Eurozone, and euro are all between a rock and another rock, and I don't think the answers will be found in the ECB meeting. But that doesn't mean the ECB won't try. Shoot Rudy, they are central planners at heart, and just like the central planners before them in Japan, the U.K. and U.S. they feel as though they have the answers, and it all circles monetary policy.
So, for those of you new to class, the ECB meeting this morning will be all about what bonds the ECB intends to buy, how much and for how long. Somehow, I don't think we'll get answers to those questions, but we will get an answer to what bonds the ECB intends to buy, and here's where the peanut butter sticks to the roof of your mouth. We've discussed this already, so if you're new to class, go to www.dailypfennig.com and read the archives. You'll find the discussion there to be quite enlightening, especially if you ask me! HA!
Well that data that we talked about above in the U.S. yesterday, caused a HUGE selloff in stocks. And the price of Oil got whacked again. But guess what investors flocked to? Treasuries. The yield on the 10-year has dropped 13 Basis Points this week alone, down to 2.40%… Crazy stuff. Why in the world would investors flock to Treasuries? Lock in a yield of 2.40% for the next ten years? Or, sell it in 5 years from now, and take a loss, because yields are much higher? Doesn't make sense to me. But then this Treasury rally has lasted way longer than I ever imagined it would.
And here's another head scratcher. The Japanese yen rallies. Really? You're kidding me, right? I mean just two days ago, yen was trading over 110, and looking like it was ready to jump off a cliff. But, I'm not kidding you. yen has rallied to 108.65. I would fashion this rally the same as I see the dollar rally right now. Just like a star that's getting ready to burn out, it shines the brightest.
Gold also found a squeamish bid yesterday, and gained VS the dollar on the day, but right before I walked out of the office yesterday, I said to our metals guru, Tim Smith, “So, Gold is up $8 when does the hammer come down on it, at the close again?” Tim laughed and said, “I don't know, but I know what you're saying, and it just gives me that uneasy feeling”. And that about sums it all up for Gold these days. When it rallies, no one is confident the rally can hold, much less carry over to the next day, it's all about not having confidence in the shiny metal right now. That's what price manipulators can do to you. The beat on you, over and over again, until you just give up. But don't give up, this is not time to give up! The Central Planners around the world are digging their holes deeper and deeper all the time, and eventually when the holes collapse on them, we'll all need Gold to help us get out of the holes.
Of course that's my opinion, just little old me, nobody else, I don't know anything more than anyone else, it's just my opinion and I could be wrong.
Two bright spots this morning are the Aussie dollar (A$) and N.Z. dollar / kiwi. I said yesterday, that I thought these two had reached an oversold level, and a bounce could come, and there it was overnight! Kiwi is outperforming the A$, but that's because kiwi has lost the greater amount of ground compared to the A$'s losses since the Central Bankers of each country took shots at their currencies last week. The oversold positions, create what the markets call a “short squeeze”, and in the absence of any data or other news from these two countries, the overnight rallies of the currencies can only be attributed to this phenomenon.
China is on holiday, and was yesterday too, so there's no movement in the renminbi. The Indian rupee is flat on the day. I did a short interview with the Dukascopy folks yesterday that centered on the rupee. I sure wanted to tell them that it was I that made the call over a year ago that the rupee was ready for better times on Bloomberg Radio, with Pimm Foxx, but. I didn't get the opportunity. It was stick to the questions, Chuck, and don't stray.
I said that I really thought that the now that the conflict between Ukraine and Russia had settled down a bit, the rupee would also settle down a bit, and probably close the year around the 60 level, not too much different from today's 61.60 level, and that, should the new Modi led Gov't, attempt to unlock the Indian economy further, rupees could get back to the 58 level next year. (remember rupees are a European priced currency, so the lower the price number the greater the return VS dollars) Once the legal beagles have given the interview their blessing I'll share the link to the site and the interview with you. But not a minute before!
The Russians certainly are stepping up their attempt to go at life without dollars. In an investment forum in Moscow overnight, President Putin, said that “Russia plans to increase use of national currencies in trade with China, and other countries.” It was then announced that Gazprom (Russia's largest Oil company) made their first trial Oil shipment to China for rubles. The ruble is rallying this morning for the first time in what seems like a month of Sundays to me. And I would have to think news like this, and the news I have for you that's related to this in the FWIW section today, would be responsible for any ruble rally right now. Oh, and I also saw a Bloomberg story saying that the Russian ETF is luring the most cash since 2011. Pretty interesting, eh?
Another currency that's rallying this morning, in what seems like it's been a month of Sundays since that has happened, is the Swedish krona. Overnight, Sweden posted a surprisingly strong PMI (manufacturing index) with the index number rising to 53.4 from August's print of 51. Consensus was for at 51.4 print, so the 53.4 print surprised everyone, and really lit a fire under the krona today. It would be nice to see this be more than a one and done for krona, but then I'm just about worn out waiting for both the krona and the Norwegian krone to quit being so tied to euros. I've said this at least 100 times before but I'll say it again, Sweden and Norway are not the Eurozone, and neither are their fundamentals!
So, I talked about the Treasury bond rally above, and one has to wonder what's going on, when you see an email like I received from the WSJ yesterday afternoon saying that “PIMCO investors pulled $23.5 Billion from total return fund after Bill Gross resigned last week”. Yikes! This is the largest monthly outflow at PIMCO, ever. So, if $23.5 Billion of bonds have been sold, how many had to be bought to cause Treasuries to rally this past week? Or. you don't think that this is all smoke and mirrors do you? Nah, let's not got there. just yet that is!
Recall yesterday, that I said that if I were the President, I would fire anyone that was responsible for the whack-job running loose in the White House. Well, it appears that the head of Secret Service decided to fall on a sword and resign before being asked to leave. Think about all the Secret Service scandals that have gone in the past 5-6 years. Time for a change I would think!
So, have you see the report from the Federal Reserve Bank of Atlanta on the labor market? Oh, come on Chuck, do you really expect everyone to scour the news like you do every night from all over the world? No, they know that if it's something they need to know, you'll cover it here the next day! OK. Let me start this over, by saying, “you should see the report on jobs that the Fed Atlanta did.” “The proportion of people working less than 35 hours a week (part time) for economic reasons in 2012 who found full-time work within a year fell to 49% from 61% in 2006. In addition, with 3 Million Americana unemployed for at least 27 weeks, they are finding it more likely that they will accept a part-time job.” That all spells underemployment folks.
Part of my presentation in Vancouver this past summer centered on how U.S. Consumers have forgotten all about 2008, and are going about spending and going into debt as though 2008 never happened. I highlighted the move in 2009 to shore up Consumer balance sheets, but that only lasted a short time, and deficit spending by Consumers had picked up again and was gaining at a rapid pace. The latest report on this from the Fed Reserve says that “Americans are taking on debt once again. The difference is that this time they are borrowing to finance cars, college tuition, and other consumer goods.” Consumer debt has just reached an all-time high of $3.2 Trillion. Uh-Oh. Now, you can't say I didn't tell you that this was going on, and it was going to be a drag when it all blows up, and don't think for a minute that it won't. Otherwise, you will be just like those consumers that are acting as if 2008 never happened.
Yesterday it appeared that the protests in Hong Kong were quieting down a bit, as the Hong Kong leaders agreed to meet with the protesters. But overnight the protest erupted once again, as now China appears to be stepping in to deal with the protesters. Chinese leaders have warned outside countries to not interfere in Hong Kong, as the Chinese leaders try to spread the word that Western Civil society organizations have had a hand in promoting the protests. And who can blame the Chinese for thinking that? We only have to go back to earlier this year, when the protests in Ukraine, led to the ouster of Ukrainian President. Western Civil Society organizations were viewed as backing the protesters, and backed by the West.
The Hong Kong dollar/ honker, tried to rally yesterday on the news that the Chinese leaders would meet with protesters, but has since given back those small gains. I don't mean to scare people with thoughts or even get them out of their easy chair. But these protests in Hong Kong really have me thinking, and we all know that's not a good thing, and I can't help but think that this could all end up bad for Hong Kong. The honker could be taken away and separate rule for the city could end. They are dealing with China, right?
Well, I did stir up the hornet's nest with a couple of readers yesterday, talking about the Swiss Gold Referendum. Thanks for all the thoughts on that subject sent to me. Some don't agree that it will be the game changer that I believe it will be. And that's OK. I don't expect everyone to climb out on the limb with me. Besides there has to be someone on the other side of the trade, right?
I received a note from two of my fave people in the world. Mary Anne and Pamela Aden, aka the Aden Sisters. They are going to be in New Orleans Oct 22-25 at the 40th Anniversary of the New Orleans Conference. The Granddaddy of all Conferences. We used to speak at this conference every year, but then somehow our invitations got lost in the mail. But that's no reason to not attend, especially if you go to listen to Mary Anne and Pam! I wish I was going just to spend some time with these two special ladies. Mary Anne and Pam read the Pfennig every day, so I'll just say, I'll miss seeing you!
Oh the reason I started to tell you about the New Orleans Conference was because the Aden Sisters email said that Alan Greenspan was going to be there. Here's what they said, “The insiders control the markets. but now the ultimate insider, Alan Greenspan, is going to tell us how the game is rigged, and what you can do about it.” Really? Has Big Al turned a new leaf? Yesterday, I told you how he was talking about the benefits of owning Gold again, and now he's going to tell us how the markets are rigged?
Today's Data Cupboard has the usual Thursday fare of Initial Jobless Claims, but also Factory Orders for August. And just like the Durable Goods Orders that reversed the huge gain the previous month, Factory Orders will do the same thing. At least that's how I see it playing out today. But it won't have too much bearing on the dollar, as the Spin Doctors will make the markets forget about the rot that's beginning to show from the lack of liquidity.
For What It's Worth. Well, I had a couple of dear readers send me this story that appeared on: www.zerohedge.com and can be read there in full. But I wanted to point out that Russia and China have really upped the ante on their desire to “end the American Dominance” , which is parlance for ending the dollar's role as the reserve currency. I've told you about the steps they've made, and now we have a Russian banker talking smack on the dollar. let's listen in.
“Two to three years is enough, not only to launch [settlements in rubles], but also to complete these mechanisms,” says Andrey Kostin, head of Russia's second-biggest bank VTB, noting that the possibility of the US and EU widening sanctions to exclude Russia from the SWIFT global money transfer system would become “a point of no return” making any further dialog impossible.”
Chuck again. I still hold the thought that the dollar's days are numbered and while I said at the beginning of this decade it would happen before the end of the decade (2020), I also said that it could happen as early as 2017. 2-3 years is right up that alley isn't it? I sure wouldn't want to be the boy who cried wolf here. But, I'm so sure of myself on this, that I have no doubt about this outcome for the dollar.
To recap. The dollar's rally is on hold today, as the currencies have a widespread rally going on, that started yesterday after some rotten to the core U.S. data printed, showing a lot of rot on the U.S. economy's vine. There's also the fact that the dollar had gone too far, too fast, and this is just an easing of the “short squeeze” in the currencies, I'm not convinced this will be more than a one day and done trading pattern today. Chuck spends a lot of time talking about the U.S. Data yesterday, and then talks about today's Data which won't be any better. The ECB is meeting as I type my fat fingers away, the ECB meeting is all about what bonds Draghi is going to buy. Chuck wishes he would tell us how much and for how long too, but doubts those questions will have answers.
Currencies today 10/2/14.American Style: A$ .8775, kiwi .7870, C$ .8990, euro 1.2635, sterling 1.6140, Swiss $1.0460, .. European Style: rand 11.2120, krone 6.4465, SEK 7.1905, forint 245.05, zloty 3.3040, koruna 21.7490, RUB 39.60, yen 108.80, sing 1.2730, HKD 7.7630, INR 61.60, China 6.1525, pesos 13.43, BRL 2.4805, Dollar Index 85.73, Oil $88.65, 10-year 2.40%, Silver $17.05, Platinum $1,273.50, Palladium $776.25, and Gold. $1,212.81
That's it for today. Well that was complete domination of the Pirates lineup last night by the Giants' pitcher, eh? So the Giants and Nationals will have to make cross country trips in their series coming up. The Wild Card Teams have been settled and now it's time to play the division series. Fun times in Baseball for sure! Today is the birthday of our colleague, Dane Moody. I've known Dane since he was a young boy, as his dad and I are very good friends. I also missed some birthdays this past week, like Danielle's and Malinda's, and others I'm sure, so for that I'm sorry. I never claimed to be Mr. Birthday! All the new shows on TV, are getting missed at my house, as the TV is on baseball games for sure. And yes, I could be recording them, but I'll catch up with them in the reruns! And if they're not still around, then it wasn't worth recording them to begin with! That's how I roll! So, I bet you've had just about enough of me talking today, so I'll get this out the door, but not before saying I hope you have a Tub Thumpin' Thursday!
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