Japan Spoils The Party!
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In This Issue..

* Currency rally is stopped by BOJ...

* Gold reached new all-time record high!

* U.S. Retail Sales better than expected...

* a "death spiral" for pensions?

And Now... Today's Pfennig!

Japan Spoils The Party!

Good day... And a Wonderful Wednesday to you! It's nice to see American politics at work, eh? We have a guy in NY that has ethics charges up the wazoo against him, but he wins his primary... Gotta love it, eh? Oh, don't start with me on the "he's innocent until proven guilty" thing... These guys are all in love with one another, and they wouldn't bring ethics charges up unless they "had" to!

Well... Judging from the tone of the lead paragraph this morning, one might think that I'm full of you know what and vinegar this fine morning... But I'm not... In fact, I could very well have gone back to sleep for hours when my alarm went off this morning, so I'm dragging the line today...

I don't want to spoil the party so I'll go... I would hate my disappointment to show... Too bad the Bank of Japan (BOJ) didn't sing that song last night... Hmmm, I thought the Japanese liked the Beatles, no? Any way... I have to turn serious here... The Bank of Japan finally intervened in the markets last night, selling yen for the first time since 2004... I had warned you that this would come about, and now it has... The BOJ came in with both guns a-blazin', just like I told you they would, and moved the level of yen from it's lofty level of 82.88 to 85.20 this morning.

Will this stop the yen from moving higher again, and what happened to the other currencies... Ahhh grasshoppers, I knew these would be the next two questions you would have for me this morning...

First... Look at the intervention this way... In most cases, a Central Bank intervenes, which ticks off the traders, and the traders push back, and eventually win, for the markets have far deeper pockets than most Central Banks... But this is the BOJ, it has a treasure chest of reserves from years of Trade Surpluses, so this push and pull between the markets and the BOJ could go on for some time, and in this case I believe it will.

So... Be careful with yen, going forward... The intervention is here, and it looks as though the Japanese have drawn a line in the sand at 83... Any push below 83 by the markets will be met with intervention... And remember, the Bank of Japan just carries out the intervention... The directions come from the Japanese Ministry of Finance... And for those of you keeping score at home... The total was between Yen .5 Trillion to yen 1 Trillion... So... If we split the difference, and say it was .75 Trillion, that's a lot of cash! And there's more of that cash to spend... Like a good friend of mine says when we're out... "Hey, I'll buy, I still have money I haven't spent yet"! HA!

And the other currencies? Well, they got caught up in the yen selling, and the lofty figures they enjoyed yesterday have been lost, for now... Just for grins though, the euro was 1.3030 yesterday afternoon, the Aussie dollar was .9450, and the Swiss franc was back to parity VS the dollar... You'll see in the currency round-up the new figures today...

But Shoot Rudy, I think the markets will get used to this BOJ intervening and get back to the task at hand, which is taking the dollar to the woodshed. Hey! Just because the BOJ intervened last night, doesn't mean the Fed is going to shelve their plans to implement additional Quantitative Easing! No sirree Bob! More Quantitative Easing is on the way, folks... Just like I could smell Japanese intervention coming, I can smell more Quantitative Easing coming here in the U.S.

So... What does this backing off yesterday's lofty figures do for us? Ahhh... Again grasshoppers, if it does one thing, it provides a cheaper level to buy today!

What put the wind in the currencies' sails yesterday? Well... It was a combination of the lingering affects of the two strong Chinese economic reports we talked about on Monday, and... U.S. Retail Sales, which, while bolstered by back to school sales, were better than expected at +.4%... Like I told you yesterday, nothing to get all lathered up about for us here in the U.S. but for the foreigners, they liked it, for it at least showed the U.S. Consumer isn't dead...

And Gold? WOW! At one point yesterday the price of Gold was up $23 on the day! And that, of course, led Gold to a new all-time record level of $1,271.70... Silver kicked some sand in the dollar's face too, rising well above the $20 level. I was sitting here in the saddle, and made a statement that I don't many people heard, as they were all busy on the phones, that went something like this... "See, I told you yesterday that Gold fluctuates in the early part of a Risk reversal, and then rallies, and look what's happening today"

I was patting myself on the back, but no one noticed, so I went ahead and got back to work!

So... Today, we have "the hang-over" (which, by the way, is one of the funniest movies I've ever seen) The currencies and precious metals partied like it was 1999, and then got cut off by the Bank of Japan, and woke up this morning, with a splitting head-ache. Like I said above, the prices of the currencies and precious metals are cheaper today than they were yesterday, and that is the hang-over... (now, my cure for such a thing is a Quarter pounder with cheese, but the currencies and metals can't go for that)

What the currencies and metals need to cure their hang-over is simply for investors, traders, etc. to come back to the table and buy them up again, and say NEENERNEENERNEENER to the Bank of Japan!

Today... The U.S. data cupboard, has my fave piece of economic data for it is a "forward looking" piece of data... And that is... Capacity Utilization, which is normally coupled with Industrial Production... Capacity Utilization, while reflecting better levels in recent months, is still suppressed from the loft levels of the high 80% in the go-go days of the late 90's... Expect Cap Util. to be around 75%, and not really telling us anything new...

U.S. stock futures are down this morning, which doesn't bode well for stocks here in the U.S. today... And, since the financial meltdown, the risk assets of stocks, currencies and metals have been lumped together, with only a few breaks along the way, that doesn't bode well for a return to the lofty levels of yesterday for currencies and metals... But that can change quickly in today's markets... Volatility has become the norm, for sure!

I see the U.S. Administration is taking credit for the "big salad"... For Seinfeld fans, you'll recall the episode where George thinks Elaine gave his girlfriend an incorrect thank you when it was actually George who paid for Elaine's lunch. (a big salad)... And the mayhem that ensued from taking credit for something when you had nothing to do with it...

And so it is (as I see it) with the U.S. administration, with regards to the rise in the Chinese renminbi VS the dollar in the past week... Was it really a result of Larry Summers, the head of the President's National Economic Council, meeting with Chinese officials last week? OR... Was that just co-inquidink? I'm of the opinion that it was the latter, which is why I went into the big production on the Big Salad! I saw that U.S. Treasury Sec. Geithner, was beating his chest, and saying that the Chinese listened to Summers last week, and that's why the renminbi has rallied the past week...

Hmmm... Since the Chinese have never really listened to any one that came to talk to them about the renminbi in the past, I'm going to think that they didn't listen to Summers either, and that this run by the renminbi in the past week that has moved the currency to its highest level since 1993 VS the dollar, is simply the Chinese trying offset the rising inflation level in their country with a stronger currency...

The Big Salad... I wonder if the writers of that episode ever thought that it would become the "Kleenex" or "Xerox"?

Then there was this... From the Bloomberg: U.S. state pensions such as Illinois, Kansas, and New Jersey are in a "death spiral" with assets at many insufficient to cover benefits, payouts consuming a growing portion of resources and costs rising twice as fast as investment gains. Less than 1/2 of the 50 state retirement systems had assets to pay for 80% of promised benefits in their 2009 fiscal years. A year earlier on 19 missed the mark... Michael Aronson, who manages $295 million Marketfield Fund of stocks, says that once states force their fund managers to keep money in short-term low-return investments to pay benefits, thus reducing chances pensions can earn their way back to financial health, the pension is then in a "death spiral"...

Chuck again... And investors are scared of Greece's debt? As they always say... Look in the mirror...

To recap... Japan intervened for the first time since 2004 last night, and spoiled the currency and metals party VS the dollar. Currencies and metals had rallied strongly VS the dollar yesterday, with Gold reaching a new all-time record high, and the Swiss franc reaching parity VS the dollar again. But the yen intervention (selling yen) has taken the bloom off the rose, and currencies and metals have lost those lofty levels of yesterday, thus giving buyers a chance to buy at cheaper levels today!

Currencies today 9/15/10: American Style: A$ .9375, kiwi .7325, C$ .9730, euro 1.2980, sterling 1.5555, Swiss .9975, ... European Style: rand 7.0770, krone 6.0810, SEK 7.0815, forint 217.20, zloty 3.0330, koruna 18.97, RUB 30.91, yen 85.25, sing 1.3375, HKD 7.7665, INR 46.35, China 6.7430, pesos 12.84, BRL 1.71, dollar index 81.67, Oil $75.90, 10-year 2.70%, Silver $20.46, and Gold... $1,269.20

That's it for today... Whew, my computer shut down right in the middle of writing this morning... Good thing Outlook saves a draft! That would have sent me off the deep end! But it didn't, and that's a good thing! We had a nice dinner last night with a few of boys and girls on the desk and our visitors from Jacksonville, Diane and Lauren. I took them to the "hill" here in St. Louis, where there are Italian restaurants galore! Going to dinner saved me from sitting through another Cardinals' loss... UGH! OK... Hey! Here's a friendly reminder to take the trash out on Nov. 2nd... I'll have to do it through an absentee ballot, as I'll be at the Sov. Society's Offshore Academy Conference. It's in Cabo, so, if you're interested you should go to: http://www.sovereignsociety.com/ and check it out... And with that, I'll get this out the door, albeit late, since I had to reboot, and I hope you have a Wonderful Wednesday... Now where's that coffee to help me wake up!

Chuck Butler


EverBank World Markets



Posted 09-15-2010 10:56 AM by Chuck Butler
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