Will The ECB Be More Like The Fed?
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In This Issue.

* Risk assets all get sold yesterday.

* News of ECB bond buying pushes euro higher.

* What's going on with Gold?

* Yen erases loss from intervention.

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

Will The ECB Be More Like The Fed?

Good day. And a Happy Friday to one and all! I'm thinking that this will turn out to be a Fantastico Friday, as I have invited the desk out this afternoon, for a quick Happy Hour. I used to do this all the time, back in the day. Shoot, I even used to take the whole St. Louis office, which consisted of about 12, then 15 and so on. Now, we're spread out over ¾ of a huge building, so I'll stick with those within the sound of my voice, which, previous to radiation, could have been heard a block down the street!

Well. we saw another "take-down" of Gold yesterday. It's shameful to watch this going on. and while it was happening, I decided to take down some notes, so that I didn't forget them front and center this morning.

OK. ever wonder why I'm so confused as to why Gold goes down when it should be going up?

Yesterday, I was watching the newswire, and saw these two contrasting headlines not minutes apart.

"Gold Demand Rose 6% in Third Quarter on European Debt Crisis"

And then

"Gold Slumps as Eurozone Fears Escalate"

Gold should be going up on Eurozone problems, not going down or slumping. But instead. Gold was off $25, when I read these stories, and soon fell further by $49! However, I'm sure, that somewhere down the line, when it can no longer be prosecuted, we will find out that the price manipulators were at work. But then, it could very easily be explained this way too. With everything else selling off. margin calls are going out, and. the one asset that people have that has gained in value (depending on when you bought it of course!) gets sold to meet those margin calls. The "all weather" currency.

Oh well, choose the one you want to go with. and there's your reason Gold went down yesterday!

I had a funny thought yesterday, as I saw the news headlines stream across the screens. The one that made me laugh a bit, was the one about how the Lawmakers file a bill to prohibit insider trading for Congress members" OK. it's not a laughing matter, but think about it. I had this vision in my head that the lawmakers that didn't know they could do insider trading without prison time, are the ones that are the most mad, and filed the bill. OK. that's not what really happened, but.

OK. enough of that! Well. Yesterday we saw the currencies drift lower and lower throughout the day. But currencies and metals weren't the only assets going down yesterday. Stocks dropped 170 points too. UGH! And as the day went along, I saw story and interview one after another where the Spanish bond auction results were mentioned or talked about. I told you earlier this week that Spain was going to be different than the Greeces and Portugals.

But, then the media does like to jump on something and ride it till it can no longer hold an audience's attention. I wonder what they'll do next Wednesday when the focus should shift to the U.S. and the Debt Super Committee's deadline.

But that was yesterday. But today life goes on. No more hiding in yesterday. Because yesterday's gone. Ahhh. a little Foreigner for a Fantastico Friday!

Today, the euro has popped back over 1.35. The moves this week have been within a tight range, between 1.3450 and 1.3550. And news that moves the euro higher today, might be the same news that brings it down next week. The markets get all lathered up, and then disappointed, sometimes within one day's trading!

The news coming out of the Eurozone this morning that has pushed the euro higher, centers on the thought I talked about yesterday. Whether the European Central Bank (ECB) is going to become the Fed or not. The markets, right now, want to reward the euro when the ECB acts like the Fed. So, here's the thought going through the markets this morning. The markets have information that is telling them that the ECB has been buying bonds this week. Yes, not just any bonds. Bonds from Italy and Spain, in order to keep the yields from exploding to the upside.

Maybe that's a good thing. But I'm not a fan of Central Bank debt monetization. I blasted the Fed when they did it, and so the ECB has really disappointed me. Debasing the currency with a rate cut, and now the bond buying. But, you can see it from their point of view. their backs were against the wall..

Speaking of the Fed. Fed Head, Dudley, spoke yesterday about the economy, and said, "I'm very unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost. If additional asset purchases were deemed appropriate, it might makes sense to do much of this in the mortgage-backed securities."

Note to Mr. Dudley. Two rounds of asset purchasing called Quantitative Easing (QE) didn't do anything to help the high unemployment, so why would more asset buying help now? The costs to the taxpayers now of the 3 years of unemployment payments has really piled on the American psyche don't you think?

Last February in Orlando Florida, at the Orlando Money Show, I gave a presentation on The Changing Currency Regime. I repeated that presentation many times in 2011, because the message was very clear. That China was taking the necessary steps to gain a wider distribution of their currency, and that within a decade the renminbi would be the next reserve currency.

I even pulled some of that talk out for Pfennig readers several times in 2011. And finally! Someone besides little old me thinks this way! Yesterday in the FT (Financial Times) they ran a story that talks about the same things I've talked about since last February. here's a snippet from the FT:

"[It] no longer seems inconceivable that the RMB could mount a challenge to the dollar, perhaps within the next five to 10 years," said the commission, chaired by William Reinsch, president of the National Foreign Trade Council, a business group. "Chinese financial authorities are laying the groundwork for these ambitions via a series of bilateral arrangements with foreign companies and financial centers."

OK. onto other things. Earlier this week I mentioned that the Bank of Japan (BOJ) must have been in the markets to intervene and sell yen, because the currency was weaker by one full figure to 77. But, as it goes with intervention. The yen is back below 77 to 76.50 this morning. I'm afraid that this yen thing all ends up in tears though.. first for the BOJ as they book millions in losses from intervention, and then finally for yen holders. I don't like the fundamentals of Japan, even with their latest pop up in GDP that was a result of the reconstruction after the earthquake and tsunami last spring.

However, according to The Economist. "In aggregate, Japan's economy grew at half the pace of America's between 2001 and 2010," the magazine notes. "Yet if judged by growth in [gross domestic product] per person over the same period, then Japan has outperformed America and the Eurozone."

So. you have contrasting opinions about Japan. The Economist likes Japan. I don't.

But I do like the other areas of Asia. China, Singapore and others. in his talk the other day, St. Louis Fed President, James Bullard, mentioned that he believed that U.S. businesses and investors were looking to Asia instead of Europe. Well. I would agree but I've been saying that about Asia for a couple of years now!

The U.S. data cupboard yielded some interesting prints yesterday. Housing Starts were stronger than expected, but a bit weaker than the previous month. Building Permits were very much stronger than September. which I found to be interesting. Weekly Initial Jobless Claims improved again showed 388,000 jobless claims filed last week. The Philly Fed (manufacturing index) was very weak.

Today, we have Leading Indicators, which I believe will continue to improve, for we're seeing the effects of all the dollar printing. But if that continues, the Gov't can't keep telling us that inflation has weakened, can they?

We'll also see Existing Home Sales, and the second revision of 3rd QTR GDP. Should be around 2.5%... nothing to feel good about, but also nothing to feel bad about either! It's just there. muddling through.

Greece continues to attempt to get their deficit spending under wraps. Their latest budget calls for a budget deficit of 9%, which looks bad, but you need to know that this budget has called for a 5.4% reduction of spending that brought it to the 9%! 11.4 Billion euros of spending cuts. Greece continues to pull the right levers, and they also continue to tick off the people who are used to all these things given to them.

I had someone write me a note and ask me why I was so tough on the U.S. spending, when Greece was about to default. Hmmm.. Well, I can't do anything about what Greece has already done, but at least they are taking steps to reverse their years of deficit spending. The U.S. on the other hand needs to stop the deficit spending NOW, and begin to make cuts to get a hold of this monster. And besides. I have a vested interest in the U.S. succeeding. I live here, and my kids live here, and my grandkids live here! So, when I blast the U.S. for its spending, and for you new to class, this has been going on since 2001, so I'm no Johnny-come-lately, I'm hoping that my dear readers contact their representatives and tell them "no mas" on the spending.

OK. back to what I'm here for. Well. I saw that German Chancellor Angela Merkel's Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules. Hmmm. does she know something we don't?

And as I get ready to head to the Big Finish today, I look over and see that the euro is stretching the trading range I talked about by rallying to 1.3575 at the moment.

Then there was this. I came across this quote by Big Ben Bernanke yesterday, and about fell out of my chair! Here's the quote from Big Ben when he spoke a year ago at Jekyll Island, which ironically is where the organizers first met to create the Fed. oh well, check this out.

"This sense out there that quantitative easing or asset purchases is some completely far removed, strange kind of thing and we have no idea what the hell is going to happen and it's just an unanticipated, unpredictable policy - quite the contrary. This is just monetary policy."

Chuck again. OK. what Big Ben is saying here folks, is that when he monetized the debt, that it was like any other monetary policy, and central bankers were created to implement monetary policy. like Quantitative Easing. UNBELIEVABLE!

To recap. Yesterday was not a good day for the risk assets across the board. But Gold was the big loser. But that was yesterday, and today, we're seeing the currencies and metals rebound this morning, as there is proof that the markets are getting what they want. The ECB to look like the Fed, and buy ailing bonds. And the FT is in agreement with Chuck. WOW!

Currencies today 11/18/11. American Style: A$ $1.0070, kiwi .7635, C$ .9780, euro 1.3580, sterling 1.5875, Swiss $1.0990, .. European Style: rand 8.16, krone 5.76, SEK 6.7460, forint 226, zloty 3.25, koruna 18.7850, RUB 30.79, yen 76.60, sing 1.2930, HKD 7.7865, INR 51.33, China 6.3548, pesos 13.63, BRL 1.77, dollar index 77.62, Oil $99.47, 10-year 1.98%, Silver $32.19, and Gold. $1,731.15 and don't forget to check out the debt clock which now shows our debt above $15,000,000,000,000. www.usdebtclock.org/index.html

That's it for today. Well. I'm hoping for a Fantastico Friday, that would include sunshine! I saw on TV last night that beginning tomorrow night, we'll get rain for the next 5 days! UGH! Well, next week is Thanksgiving. Food, Football, Families, Friends, and giving thanks for our blessings. It will be a short week for me, as I will not be in on Friday, and no I won't be out shopping! Our office is in a building that's part of a shopping plaza. You can't imagine, unless you do this yourself, the people that camp out in the parking lot to be the first in line when the store opens, and the craziness getting to and from the office the day after Thanksgiving, so. I'll just skip that! And then my annual winter vacation will kick in the middle of December, so I've got that going for me! My Tigers play tomorrow, so good luck to them, and with that I had better get this out the door.. Thank you for reading the Pfennig, now go have your own Fantastico Friday!

Chuck Butler


EverBank World Markets



Posted 11-18-2011 10:56 AM by Chuck Butler
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