3rd QTR GDP To Lift Our Spirits?
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In This Issue..

* Currencies rebound a bit VS the dollar..                      
* Bill Gross on the dollar...                             
* Norway raises rates!                                       
* RBNZ lifts easing bias!                                                                                      

And Now... Today's Pfennig!

3rd QTR GDP To Lift Our Spirits?                              

Good day... And a Thunderin' Thursday to you once again! It's not raining at the moment, but rain is forecast for today, thus the Thunderin' Thursday name! Rain today, tomorrow and who knows when it will stop... I'm thinking of buying the blueprints to build an Ark!

Front and Center this morning, we have the non-dollar currencies showing some healing as stock futures are positive. What's driving this new found positive feeling in the risk assets? Well, it's all about the first reading of 3rd QTR GDP today, which... Is expected to show that the U.S. economy came out of the recession in the quarter. Of course, I'll be looking for the Gov't spending portion of the GDP, but other media outlets won't, and the markets will get back to looking for higher yields, which you can not get in the U.S.!

Speaking of higher yields... Norway's Norges Bank did indeedly do raise rates yesterday, making them the first European Central Bank to do so. The Norges Bank members chickened out and only opted for 25 Basis Points (BPS), when I thought they should go the full 50 BPS... But, hey! The Norges Bank is raising rates, right? Let's not get picky here! Is the European Central Bank raising rates? Is Sweden's Riksbank, or Switzerland's Central Bank raising rates? How about Canada? Or Japan? NO, NO, NO, NO, NO, NO and NO! Let's get to giving some love to the Norwegian krone!

So... Looking at the rate hike score card of major countries, we have Australia, and Norway... The exact two I told you months ago would be the first to raise rates this year, when most observers thought it would be in the first quarter of 2010... So, if the U.S. GDP is as strong as forecast (+3.2%) then investors and risk takers will be coming out of the walls again, and buying higher yielding assets... There's only a few places in the world they can go folks... Australia, New Zealand, Brazil, South Africa, the Eurozone, and Norway... The Euro wannabes of the Czech Republic, Poland and Hungary probably fall in there somewhere, but those countries are not at the top of the Hit Parade when people start looking for yield!

OK... So, the non-dollar currencies are seeing some healing this morning... The Big Dog, euro, had fallen to 1.4706 before the healing began, and is now 1.4750... The Aussie dollar (A$) had fallen to 89-cents and change, but has rebounded to .9055, as I write. And... If the trading theme remains in place, the dollar will get hammered on the positive GDP report this morning...

Well, yesterday it was PIMCO's Bill Gross's turn to give his thoughts about the dollar... Let's listen in...  The dollar is an over-owned currency and likely to fall to an all-time low against major counterparts, Pacific Investment Management Co.'s Bill Gross said in an interview on CNBC.

"The Chinese, the Asians, have owned too many dollars for too long." The dollar becomes more and more owned and less and less desirable, so ultimately the direction is down. I don't sense stability in the dollar."

OK... Thanks Bill! Hey! Recall the other day when I gave you the list of "rumors" in the markets that deep-sixed the non-dollar currencies? One of the items on that list was the rumor that the tax credit for first time home buyers wouldn't be extended... Well, now there's a rumor going 'round that someone's underground, and she will rock, no wait! The rumor going around is that the tax credit will indeed by extended to April 2010... You heard it here first folks, remember that! HA!

And the folks over at the Royal Bank of Scotland (RBS) sent out a note to customers that "the euro remains in an uptrend, and investors should buy the currency when it weakens. It has dropped back to the middle of its last consolidation zone in late September and early August. In a bigger correction scenario it may make it down to 1.45-ish, but it is no longer a compelling sell, and medium term considerations favor buying dips."

Hmmm... Couldn't have said that better myself!

So... Let's get back to this thing with the risk assets... There must be quite a few of you missing class each day, for recently, there have been a ton of people telling me that I never talked about a risk asset sell off... WHAT? ARE YOU KIDDING ME? I've been talking about how stocks have been linked to currencies and commodities (the risk assets) for months now! And several months ago, I began to see the price to earnings ratios getting way out of whack (tech bubble like!) and began to talk about a stock market sell off that could adversely affect the price gains that the currencies and commodities had made since March...

I know that some of you believe that I only want to "talk up" the currencies to benefit me somehow... And would never write about a potential currency sell-off... Well I have written about it... And this isn't the first time either! I'm really pounding the keys right now, because the more I think about this, the more it ticks me off! I mean... Do these folks not recall my going through how to handle a currency sell-off? It went something like this...

If you bought currencies and precious metals to simply go with the flow and get out when the prices begin to decline to book your profits, then you simply want to watch the stocks to see if they put in a 4-day consecutive sell-off... That might be your indication... However, if you bought your currencies and precious metals to diversify your investment portfolio to: 1. not have just dollar denominated investments, 2. to provide a hedge against the potential of a further weakening in the dollar... Then you will simply want to batten down the hatches and ride this dollar strength out... And if you do anything, you might want to take this dollar strength as an opportunity to buy at cheaper levels!

Calm down, Chuck... Ok, I was gone for awhile but I'm back now... The real question is just why are stocks and currencies and commodities all being thrown into the same barrel marked Risk Assets? When fundamentals are in place, this isn't the case, for currencies and commodities have a low correlation with stocks, and they have different pricing mechanisms...

So, a return to fundamentals would be like manna from heaven for yours truly!

OK... Earlier this week I talked about the Bank of Canada officials jawboning the Canadian dollar / loonie lower... Well, they've done their job... The loonie is 2 full cents lower... I expect the markets to test the Bank of Canada (BOC) here, to see if they really want to keep the loonie from getting stronger...

The Reserve Bank of New Zealand (RBNZ) met last night, and while they officially removed their easing bias from their monetary statement, they did not come out and outright mention rate hikes.... In fact, the RBNZ said that there was "no urgency to begin withdrawing monetary policy stimulus" (low rates)... So, it was a two-handed monetary statement by the RBNZ... They removed the "easing bias" but didn't feel the urgency to move rates higher... But shoot Rudy! That's way better than the stuff they gave us at the last meeting, which was "we expect to keep the OCR (their Official Cash Rate / interest rate) at the current level until the second half of 2010"... Yes, Virginia, the RBNZ did improve their statement!

Yesterday, I talked about GMAC coming back to the well, and asking for more bailout money, to the tune of $12-15 Billion... This has some conspiracy undertones to it folks... You just have to think about GMAC and the bank they own, which in reality the taxpayers own! Well, the thoughts going around now is that GMAC, which has already gone to the well 2 times for bailout money, will get what they need, because the Gov't is "in too deep"... Oh great! Now we not only have the "too big to fail" thing, but the "in too deep" thing going for us taxpayers! Where do I sign up for more of this? I just can't get enough of Gov't owned former private sector businesses! NOT!

OK... So, like I said at the top, 3rd QTR GDP will print a preliminary figure this morning... And is expected to have gone from negative to +3.2%... That's quite a rise, don't you think? Personally, I think that it will be less than 3%, probably around 2.5%, and will have been made up of Government Sending... But don't let that get in the way of a feel good media blitz that will happen after the number is printed this morning!

U.S. New Home Sales declined in September for the first time since March... Does any one else feel that the best of the U.S economy during this recession / depression has passed us by, and that we'll be double dipping soon?

Well... With it being a Thursday, we will get the usual Weekly Initial Jobless Claims this morning... You know, this is some very disheartening data... The Weekly Initial Jobless Claims continue to remain above 500,000 each and every week! And the Continuing Claims continue near 6 million at 5.920 million! Who among us believes that the U.S. economy can REALLY recover as long as we have 16% unemployment rates?

To recap... The dollar rally continued throughout the day yesterday, but has stalled in the overnight markets, as the focus shifts to the U.S. 3rd QTR GDP, which is expected to be positive, thus technically taking the U.S. economy out of recession. This would bring the risk takers back into the markets, and thus the dollar would get hammered... The Reserve Bank of New Zealand lifted their "easing bias" but left rates unchanged, and U.S. New Homes Sales declined in September...

Gold is up $7 this morning, so it too is receiving some love, and healing!

Currencies today 10/29/09: A$ .9050, kiwi .7265, C$ .9280, euro 1.4750, sterling 1.6465, Swiss .9765, rand 7.8150, krone 5.7050, SEK 7.0170, forint 186, zloty 2.8880, koruna 17.92, RUB 29.27, yen 90.70, sing 1.3985, HKD 7.75, INR 47.21, China 6.8280, pesos 13.23, BRL 1.76, dollar index 76.26, Oil $77.83, 10-year 3.43%, Silver $16.33, and Gold... $1,035.50

That's it for today... Had a visitor yesterday... A very delightful person! It sure was nice to meet you Rebel! This past week has been the 80th anniversary of the 1929 stock market crash! I really am grateful for all of you readers that haven sent me notes this week with kind words... They are truly appreciated! A reader sent me a note yesterday giving me 3 cheers for not calling the Pay Guy a Czar... Yes, the Czars thing makes me ill! My trip to Cabo San Lucas might be nixed because of the blood clot they found in my leg... I hope not, I was really looking forward to going there! It's Thursday, so our little Christine will stop and bring us in breakfast sandwiches... Yeah for us! And on that note, I'll hit send... I hope it's dry where you are, but that your Thursday is still Thunderin'!

Chuck Butler
EverBank World Markets

Posted 10-29-2009 9:08 AM by Chuck Butler
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