In This Issue.

*Fiscal Cliff talks turn optimistic.
*Currencies & metals turn-around.
*Aussie CAPEX prints a negative outlook.
*Rupees are best performer overnight.

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

Will We Or Won’t We Avoid The Fiscal Cliff?

Good day.  And Tub Thumpin’ Thursday to you! I’m so glad yesterday is, well, yesterday! I woke up feeling awful and for awhile after I got up and started moving I felt better, but by the time I got home. UGH!  But, that was yesterday. but today life goes on!  You know, one of the things I love about the Christmas season is the introduction of peppermint mochas! I’m sipping on one right now, and it takes me away to a nicer place.

The currencies and metals must also be sipping from their peppermint mochas because they are also in nicer places this morning.  It all began about mid-morning yesterday. But before the turn-around, there was some real selling, that dragged the euro to below 1.29 and the saw $25 taken away from Gold’s value, and over $1 in Silver’s value.   The newswires all said the same thing. That the optimism from U.S. economic data was driving the dollar higher. So, I scoured the economic data and just didn’t see the reason for optimism. And it was about that time that the turn-around began.

The overnight markets of Asia and Europe have taken the ball on the turn-around and run with it, pushing the euro up 1-cent from yesterday’s low.. as I write this morning the euro is 1.2990, oh so close to 1.30, which has seemed to be the line in the sand for the euro in recent months. Any moves above 1.30 seem to be met with tons of selling, so it will be interesting to see if that pattern remains as we head into the last month of 2012.

The turn-around seems to be getting some legs from the overall feeling that the Fiscal Cliff will be avoided. And we will find a way to kick the can down the road once again. I had a reader send me a note yesterday, telling me that a lack of revenue (taxes) isn’t the problem in the U.S. with regards to the debt, but that expenditures are the problem.  I agree. I know personally that my taxes are too high. but that’s what I’ve been saying. What I’ve been saying is that our leaders are going to see things the wrong way, and THEY will Believe that raising taxes is the answer.  The don’t know how to cut spending, so they do what anyone would do in that situation, find more income. Is it the answer? NO!  Things like recessions and demographics (ask Japan about that one!) put a damper on income streams, so. a country like ours, needs to find ways to cut spending.

Another reader sent me a note and said Chuck, you always talk about the big nuts of our debt, the Medicare, Medicaid and Social Security, but never the military expenses.  Ahhh, grasshopper, I guess you missed the Special Sunday edition of the Pfennig where I laid out my plans for cutting the deficit spending, and thus the debt. and at the top of my list was what I would do with regards to the military expenses.  You can find it in the archives at:   (it’s all too long to go through here)

Yesterday, I told you about how the Capital Spending Expenditures in Australia (CAPEX) was a very good indicator of economic growth, even though it’s looking backward. And the CAPEX posted a nice increase in the 3rd QTR (+2.8% Vs the previous qtr) . The only negative of the report was the future spending plans showed they would be negative. Uh-Oh. This news has placed the Aussie dollar (A$) back on the rate cut watch, and that has caused the A$ to lag in the turn-around by the rest of the currencies this morning.  The markets have priced in a 80% chance of a rate cut next week by the Reserve Bank of Australia (RBA).

I still believe that the RBA will keep their powder dry next week, and leave rates unchanged, but maybe that’s just me hoping that they leave rates unchanged, and it’s skewering my thought process! Really. I don’t see any reason for a rate cut here. But then I’m just that crazy guy in St. Louis, Mo. that likes to think he knows better than Central Bankers around the world. right? Well. I think that Central Bankers around the world would do their jobs better, if they did listen to someone (not me of course! And not the IMF for goodness sake!) outside their country that sees things a little differently.

But, can you imagine the bounce the A$ would get next week IF the RBA kept rates unchanged like they did at their last meeting?  If a rate cut is 80% priced in, that means the A$ has lost value on that “pricing in”. So. this is where the rubber meets the road for the BIG BOYS. Some will make a bet on the direction of rates, and some will win, big time, and some will lose. You and me? Well, we just want to hold our A$’s and be happy. don’t worry, be happy!

I told you the other day about the flow of foreign investment / funds into China. Well, it appears to me that the same can be said for a flow into India. The Indian rupee, which has been very, very weak lately, put in a one-day performance to beat all other currencies, and it’s all about foreign flows into India. Of course, the news from China, and. the optimism from the Fiscal Cliff talks in the U.S. helped the rupee with its move higher VS the dollar overnight.

And that brings me back to the point I’ve made over and over again this past year. Asia. It’s where the best performers are going to be, as we move through the rest of this year, and next year. of course that’s my opinion, and I could be wrong.  But, I just see the western economies circling the bowl, and Asia being the bright star of the global economy.  The boys and girls over at Goldman Sachs said, “after a very challenging 2012, we see India’s economy gradually improving as we move into 2013, especially from the 2nd half onwards.”  India is like the wild card of the Asian countries, so if the Indian economy is improving, that means good things are happening for the rest of the Asian countries!

The other day, I told you that the Bank of Canada (BOC) Gov. Carney, had been approved to take on the Bank of England’s Gov. position.  I think that Carney did a pretty fair job as the head of the BOC. I do believe that he fell short of doing a fabulous job, by not adding to his initial rate hike, which was the first by a G-7 country when it was made..  The housing boom in Toronto needed higher rates, but never received them. I have a good friend (hi Craig!) that lives in Canada, and gives me insight into the Canadian economy.  And both he and I believe that rates needed to be higher.. But, in Carney’s defense, the economy seems to be moving at a steady speed.  and the Canadian dollar / loonie has held pretty steady Eddie around parity for most of the year.

Canadian 3rd QTR Current Account Deficit is going to print today, and this is an area that I don’t think Mr. Carney will be proud of. The 3rd QTR Current Account Deficit is expected to widen to a level (C$ 19.4Billion) that is a record. and that would put the Current Account Deficit at 4% of GDP.  That’s not a good thing, and should be a warning sign for whomever takes over at the Bank of Canada.

Speaking of GDP. wait a minute I have to stop and sing along with this Heartsfield song.. Pass me by.  OK. I’m back now. Speaking of GDP. The U.S. will print their 3rd QTR GDP today too.. The “experts” are thinking that 3rd QTR GDP will hit 2.8%…  (2nd QTR was 2%).  Of course, this number will be revised a few times before it’s finally put to bed, and as always, I think the initial number is too lofty. and will be revised downward, as we go along.  But, the markets will love this preliminary number.  and in keeping with the recent trend, that’s filtered back into the markets, it will be bad for the dollar, and good for the global growth campers.

A Bloomberg Global Poll revealed that the world economy is in its best shape in 18 months, as China’s prospects improve, and the U.S. looks likely to avoid the so-called Fiscal Cliff.  Two-thirds of the 862 participants of the survey said the global economy is either stable or improving.  Well, that’s all fine and dandy. but I don’t think the U.S. will be out of the woods if the Fiscal Cliff is avoided. it might be in the short-term, but eventually smart people will see the kicking the can down the road, as a bad thing once again. And don’t forget we also have the debt ceiling limit getting close to being met.

The U.S. Public Debt Subject to the Limit today is: $16,168,520,000,000.  The debt ceiling limit is $16,394,000,000,000.  The actual total debt is $16,300,000,000,000, but the amount subject to the debt limit is lower.  Of course I don’t make up these numbers folks. the U.S. debt clock is the handy tool I use almost every day!

OK. move on to something else, Chuck! All those zeroes make your head start to spin!  A dear reader sent me a link to story that the well respected analyst/ writer, Jim Willy, wrote recently about how China is taking a lot of the Gold they have bought and mined recently and recasting it as coins.  he believes that this is to use as a currency, first in trade, and then as deposits and normal exchange of money by citizens..   This plays well with my call a couple of years ago that China was hoarding Gold as a way to back the renminbi, when they decided to float the currency.  And that may still happen, but for now, it appears that China will have Gold to use as they see fit.

Here they come again. mmmm-mm-mm. catch us if you can, mmmm-mm-mm, time to get a move on ,mmmm-mm-mm, we will yell with all of our might.   – The Dave Clark Five

Yesterday, that song popped into my head when I read the story about the delinquent student loans that are piling up these days.  11% of student-loan balances were 90 or more days behind at the end of September, up from the 8.9% rate at the end of June!   This rate now exceeds that for credit cards!   OK. you have to ask yourself this question about these student loans.  Is the Gov’t encouraging students to take on too much debt?   I mean our Gov’t has a record of doing that, but only the last time it was Home Mortgages.  Remember, Big Al Greenspan telling people to use adjustable rate mortgages?   OK. I’ll move along here, just wanted to get that out there, and state from my point of view, that this growing student loan debt problem is going to end up in tears.

Then There Was This. Well. all this talk about an improvement in the Housing Sector was very questionable to me. and a dear reader sent me a link to this story on the Wall Street Journal 24/7 site. “The U.S. Census Bureau this morning released data on new single-family home sales for October. Sales fell 0.3% month-over-month, to a seasonally adjusted annual rate of 368,000. Economists had been expecting a seasonally adjusted annual rate of 387,000. The October number is 17.2% higher than the total for October 2011. At the peak in 2005, new home sales posted a seasonally adjusted annual rate of nearly 1.4 million.

The Census Bureau also reported that the median sales price for new homes sold in October was $237,700 and the average sales price was $278,900. In September, the median sales price for a new house was $242,400 and the average sales price was $292,400.”

Chuck again. So.. New Home Sales, and Prices actually dipped. Now that makes more sense to me!

To recap. the selling in the currencies and metals reached a fever pitch yesterday morning with Gold losing $25 and the euro dropping below 1.29, before a turn-around began to take hold. The overnight markets continued the turn-around, and this morning, the euro is 1-cent higher than its low yesterday morning.  The rupee was the best performing currency overnight, as investors see the foreign flow of funds into China spilling over to India too. And the Aussie CAPEX data was good, but the outlook was negative, and has led to a rate cut being 80% priced in. So the A$ lost ground overnight.

Currencies today 11/29/12. American Style: A$ $1.0455, kiwi .8215, C$ $1.0085, euro 1.2990, sterling 1.6025, Swiss $1.0790, .. European Style: rand 8.7510, krone 5.6550, SEK 6.6425, forint 215.15, zloty 3.1555, koruna 19.4030, RUB 30.83, yen 82.15, sing 1.22, HKD 7.75, INR 54.82, China 6.2182, pesos 12.94, BRL 2.0970, Dollar Index 80.14, Oil $87.47, 10-year 1.64%, Silver $33.87, and Gold. $1,725.97

That’s it for today. Well.. I go today for my annual “eye polishing”. When I was at the MD Anderson Cancer Clinic two weeks ago, they really checked my eye socket out, and reminded me that I needed to get the shell polished once a year. So, that got me on the ball when I got home! Well, I hope my “feeling better today” continues throughout the day! Tomorrow, is the last day of November. WOW!  Then December will fly by in a heartbeat, and we’ll be talking about New Year’s Eve. So, slowdown, and enjoy the month. it’s a beautiful time of year, especially if you have little ones around.  Of course, I’m like a kid at Christmas. but, I’m no “little one” HA! And with that thought. I thank you for reading the Pfennig, and I hope you have a Tub Thumpin’ Thursday!

Chuck Butler
EverBank World Markets