In This Issue   RBA removes verbiage about A

first_imgIn This Issue. *  RBA removes verbiage about A$ strength. *  Sweden prints stronger than expected manufacturing report. *  Chinese manufacturing prints flat. *  Hedge Funds return to Gold. And, Now, Today’s Pfennig For Your Thoughts! The Partial Shutdown Begins. Good day.  And a Tom Terrific Tuesday to you! And also welcome to October, which for many years, I’ve referred to the month as Rocktober! So, Rocktober is here, time to start getting the woolies out of storage, rake leaves, do like Chris like to do, go for rides to view the autumn foliage, and get ready for Halloween! Of course, Rocktober has also brought us a partial Gov’t shutdown. I’ll start with that discussion this morning for it’s what all the media is going kaka over! (and I don’t mean the soccer player!) So, yes, the partial shutdown of the Gov’t began at midnight last night, as the calendar turned to Rocktober. I guess I’ll have to remind the media to get a grip here… We’ve seen this all before… Yes, it’s been 17 years since the last Gov’t shutdown.. And we’ve had a number of these in our past. So, let’s not go all Chicken Little on me here! These are the things that happen when you allow your debt to rise unsustainably for over a decade… There’s an old saying about having to pay the piper… Well, that’s what this is all about… Speaking of “What it’s all about”… On a sidebar, I saw a sign the other day, that read: The Hokey Pokey Clinic… A place to turn yourself around… and that’s what it’s all about! So… What we have here is a failure to communicate… The House says that they want to negotiate and the Senate says they don’t want to negotiate… I don’t think I can even come up with a silly saying about what the lawmakers are doing right now, but… You know me, I think that both sides of the aisle has been to blame for this debt mess we’re in… And the dollar is caught in the middle… How long this lasts only the Shadow knows, but it appears that the markets are not happy with it, or the dollar right now… You see… the markets figure that if the Gov’t is going through this exercise of a partial shutdown, that the economy is going to suffer, and that would mean the Fed would have to extend their stimulus of bond buying and ZIRP (zero interest rate policy)… And all this is what has hurt the dollar in the past, so no reason to upset that applecart… Sell dollars because no one knows how this all stimulus ends, and now we’re just extending the unknown… So, after I signed off and sent the letter for review yesterday morning, the euro began to tick upward, and by the time everyone had arrived at their places with bright shining faces, the euro had climbed to 1.3545.  Recall, I had told you yesterday morning that the euro had fallen below 1.35, but the move was small. That downward movement had been caused by the news this past weekend that Silvio Berlusconi (yes him again!) was pulling his party out of a coalition that would bring the Italian Gov’t down.  A couple of things come to mind after typing that. 1. I’ve been dealing with currencies since 1992. And I’ve been writing about the misadventures, legal problems and scandals of Mr. Silvio Berlusconi since 1992! I can’t believe he has stuck around all this time!   And 2. These Gov’t dissolutions happen all the time in Parliament Governments. And yes, it should have had some negative effects on the euro, but not much. But, as the morning wore on, a whispering campaign began to carry through the markets, that there were defectors from Berlusconi’s plans to withdraw his party.  And the number of defectors would be enough to maintain the current Gov’t. coalition.  And that’s what got the euro started once again. This morning, the euro is trading around that 1.3545 level still, but there are a few other currencies taking up the slack of a weaker dollar… The Aussie dollar (A$) is up more than 1-cent this morning…  The Reserve Bank of Australia (RBA) left rates unchanged, as I suspected they would, and then removed some key verbiage from their statement regarding their concern with the strong A$…  The Swedish krona is outperforming Europe this morning as Sweden reported that September Manufacturing expanded at its fastest pace in more than two years…  The rest of the currencies are falling in behind these two… As far as the A$ is concerned, think about this for a minute… The U.S. Gov’t has begun to partially shutdown. In Japan, PM Abe announced that he was raising sales taxes next year from 5% to 8%…  But in Australia, the RBA leaves rates unchanged and stops dissing the currency… I would think that the spotlight is shining brightly here, as opposed to U.S. dollars and yen…  But remember what I told you that RBC thinks about the RBA and the A$ yesterday… And what the heck is Japanese PM Abe thinking about raising Sales Taxes? Think about that for another minute. Japan has had deflation cast over their economy for two decades, and part of deflation that’s not bad is that prices don’t rise, therefore there’s no impetus to go out and buy stuff now, as the Japanese know that the price will be the same in 6 months from now. So, retail sales stink in Japan, have stunk, do stink, and will continue to stink now that the PM has increased Sales Taxes!  Geez Louise, what’s in the water over there in Japan that makes these guys think like this? OK… had to stop and sing along with the Guess Who, and their great song, These Eyes… But I’m back now… Like I always say, it’s a good thing I’m here by my lonesome in the early morning!  But you have to love that Burton Cummings. And speaking of great things from Canada. The Canadian July GDP report printed yesterday ( I Know! This is so old data!) and printed stronger than expected, fully reversing June’s drop of -.5%…  July printed at +.6%, with a rebound in manufacturing having the greatest affect on the data. I would think that the Bank of Canada (BOC) realizes that June’s drop was a direct result of the Alberta floods, and the July report is a sign of good things to come! I also think that given this quick start to the 3rd QTR for Canada, that we could very well see 3% growth in the 3rd QTR. If that happens, and we won’t know until we’re unwrapping our Christmas presents, we could very well see the BOC return to a rate hike campaign in 2014. We’ve already heard from the Reserve Bank of New Zealand, (RBNZ) which pretty much greased the tracks for a return to a rate hike cycle in 2014.. Old stodgy countries, that are stuck in their ways, their wage requirements, and red tape, can’t improvise, adjust and overcome to the needs of the Emerging Markets like the mid-size industrialized countries can. And with growth being driven by the Emerging Markets as we move along in the decade, that will mean good things for everyone but the Old stodgy countries. You know who I’m talking about! Speaking of Emerging Markets. China printed their September manufacturing index at 51.1%, which is bang on what it was in August, and a bit below the expectations of 51.6%…  China is on their Golden Week holiday this week.  So, that makes the two of the top 3 economies in the world on hold this week. I still believe that China’s economic slowdown is over, and they are primed and ready to explode to the upside again. We’ll have to wait-n-see, eh? I know that many of you read my friend, John Mauldin. Last week John wrote in his weekly letter that he believed that the U.S. dollar would remain the reserve currency for years to come, and end up being more worthy than it is today. He also said that he believed that China would become a reserve currency too. Hmm.  I’ll remind you that John also has called for the collapse of the euro for about 4 years now. So, I tell you this about what he said about the dollar, as my effort to be fair and balanced. But it does make for a good two-way market, eh? You know that I don’t believe in that talk about the dollar being more worthy than it is today in the future. How can that be? Well, he goes about explaining that with the U.S. gaining its energy independence, that the Current Account Deficit will eventually become a Surplus.  But when? And it’s my contention, and I’ve explained it here, and whenever I give presentations these days, that having our Energy Independence isn’t going to help us much when the Chinese demand payment in the form of our Oil reserves, instead of the dollars that the Fed and Treasury have weakened for years. That’s just a thought on how it all plays out, folks, I’m not saying that I know anything that others don’t. And I could be wrong with all this. Let’s hope I am! British pound sterling continues to march to a different drummer these days, and book higher and higher levels VS the dollar. I say that about a different drummer, because the pound and the British economy has been so tied to the U.S. in the recent years. but new Bank of England (BOE) Gov. Carney really lit the fire under pound sterling last week when he said that the economy might not need additional bond buying. Now, that doesn’t mean the bond buying is over for sure here. And should bond buying return, these Happy Days for pound sterling will be a thing of the past. I was talking with my good friend, Charlie Tiano, last night (about baseball of course!) and the conversation switched over to the Gov’t Shutdown. I said that I expected to see a stock sell off and a switch to Treasuries. But this morning, Treasury yields are rising, which would mean that what I described as to what I thought we would see, hasn’t materialized yet.  The other thing I thought we would see is a rise in the price of Gold. That too hasn’t materialized yet. Speaking of Gold. I read on the Bloomberg last night that Hedge funds combined holdings of Gold futures rose the most in September.  I also saw that Gold had its first profitable quarter in a year. The last quarter that saw a rise in the price of Gold was the 3rd QTR of 2012. Last year, the quarterly rise proved to be a false dawn to Gold’s price continuing to rise. Maybe, just maybe, this year will prove to be different, although you know me, I don’t like that saying. (This time it’s different)  I’m just saying, that with the Gov’t shutdown, and worries all around the world, that Gold has a reason to rise. The U.S. data cupboard has the September ISM Manufacturing Index to print for us today. The “experts” believe it will print around 55. which is a good number, and is a direct result of the weaker dollar that we’ve seen in the past couple of months.  But then maybe with the partial Gov’t shutdown, we won’t see any data prints. Which would be fine with me, for you know me, I think they are all garbage these days with all their hedonic adjustments. Before I head to the Big Finish. a long time reader sent me a note yesterday with his thoughts on the Gov’t shutdown. Let’s listen in. “My idea for the Gov’t shutdown is to withhold all pay for Congress, the President and all their staff, until a budget is in place. That should change a lot of hard heads. Imagine how creative, and cooperative they will get once their own salary is sequestered.” My thoughts exactly! For What It’s Worth. I found this on moneynews.com, a sight that I frequent more and more these days. It’s the Fed Reserve president Richard Fisher, you know the guy that owns a truckload of Gold. Let’s listen in to Richard Fisher talk about Big Banks, and the U.S. Gov’t. “Fisher’s solution is not so much to break up the mega banks like Bank of America and JPMorgan Chase as it is to put a firewall between their banking activities and their investment activities. According to his thinking, federal deposit insurance and access to the Fed discount window should only be available to the commercial banking arms of the big banks, while any transaction involving any other segment of their businesses, including their investment arms, “be accompanied with a clear agreement between counterparties that it will never, ever be bailed out by government or the taxpayers.” But would this scenario play out in Washington? “The large financial companies and their proxies are spending millions of dollars to buy congressmen and congresswomen and protect their interests,” he told Euromoney. “You can quote me on that. We will see how that plays out.” Small businesses should be the engine of U.S. growth, but they are being thwarted by lack of direction from Washington, and the fact there has been no federal budget for five years, Fisher explained. Neighboring Mexico has a sounder fiscal policy than the United States, according to Fisher. “Mexico has a balanced-budget rule. Its percentage of debt to GDP is minimal. They get things done. And they have an independent central bank that is truly independent.” Chuck again. OK. I think that my first choice for new Fed Chairman is Bill Bonner, but Richard Fisher is running a close second! To recap. The Partial Shutdown of the U.S. Gov’t has begun, and with it has brought some dollar selling.  This is the first shutdown in 17 years in the U.S. but has been done a number of times in our past, so don’t go all Chicken Little on me here. It’s called negotiating.  The RBA left rates unchanged by also removed some verbiage about concern for the strong A$… And that has pushed the A$ up over 1-cent overnight. Sweden booked a stronger than expected manufacturing index for September, and that has the krona coming in second place in the currency returns overnight. China booked a flat Manufacturing Index, but that doesn’t spook Chuck. Currencies today 10/1/13. American Style: A$ .9425, kiwi .8290, C$ .9705, euro 1.3545, sterling 1.6235, Swiss $ 1.1060, . European Style: rand 10.0585, krone 6.0050, SEK 6.3735, forint 218.65, zloty 3.1225, koruna 18.9250, RUB 32.26, yen 97.80, sing 1.2515, HKD 7.7550, INR 62.46, China 6.1480, pesos 13.12, BRL 2.2165, Dollar Index 80.05, Oil $102.16, 10-year 2.65%, Silver $21.64, Platinum $1,398.25, Palladium $723.16, and Gold.. $1,326.06 That’s it for today.  My beloved Cardinals’ first two playoff game times have been set. 4:07 on Thursday, 12:07 on Friday.  I’m sure there has to be someone out there that I know that has tickets to Friday that won’t be able to get away from work to go to the game and will need someone to use their tickets! I’m your man! Sorry about the later delivery time of the Pfennig yesterday, we had a communication problem. So, do you go to the Pfennig Blog site ever? If not, you should, as you can check out the archives, and respond right there to maybe even start a lively discussion among Blog site readers! Check it out here: www.dailypfennig.com   My marketing people wanted originally to only do the Blog site, and get rid of the email. You should have seen the temper tantrum I threw! So, no worries, now we have both! And two things are better than one! Right?  Tampa Bay Rays beat Rangers in their one-game playoff to play another one-game play-in today VS the Cleveland Indians. Crazy stuff! Our Blues begin their NHL season in a couple of days. Will it be another year of “same old Blues” or will this be the year they finally drink from the Cup?  We won’t know until June, so don’t go all-in right away. And with that, I hope you have a Tom Terrific Tuesday! Chuck Butler President EverBank World Markets 1-800-926-4922 1-314-647-3837last_img

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