Moodys Leaves Spain's Rating Unchanged.
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In This Issue.

* Euro soars on Moodys decision.

* Did U.S. Retail Sales really soar?

* Aussie dollar pushing toward 200-DMA

* Singapore dollar hits 1-year high!

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

Moodys Leaves Spain's Rating Unchanged.

Good day. And a Wonderful Wednesday to you! How was your Tom Terrific Tuesday? Mine was a day of getting my leg up, and visiting one of my many doctors. But, it appears that Spain's Tom Terrific Tuesday was just that! More on that in a minute, but first a word from our sponsor. HA! Bet you thought I was going to plug an EverBank product, eh? Nah. just having some fun to get my juices flowing this morning!

Front and Center this morning. the currencies are on the warpath VS the dollar this morning. It's been about a month (when QE3 was announced) that we've seen moves like these by the currencies VS the dollar. So, what brought about this strong upward move? Well, I'm glad you asked! Late yesterday afternoon, about the time everyone was ready to head out the door, Moodys announced that they were keeping Spain's credit rating unchanged at a notch above junk. Remember my discussion about this long awaited announcement by Moodys?

Well. in case you missed class that day, I explained that by having Spain's credit rating fall to junk bond status, it would really hurt Spain and the euro, for, if bonds were junk status, they would have to be removed from any global bond indexes. And if they were removed, that would mean they would be sold, along with the euro. But that didn't happen, and you can bet your sweet bippie that there were lots of trades betting on this to happen that had to be reversed, before the losses mounted. And, So, the party spilled out into the streets, with traders and investors buying euros like there's no tomorrow!

But, the Moodys announcement isn't just all about the euro. it's a stamp of approval for risk. Remember last week, I told you that it appeared that the risk sentiment was returning. Well, I would have to say that it's in full force this morning! Overnight we saw China allow the renminbi/ yuan to reach another all-time high VS the dollar. I would have to think that given this move, the Chinese know that their print of 3rd QTR GDP tonight is going to be good. Otherwise, why would they jump in with both feet? Why not wait-n-see?

The Aussie dollar (A$) has rallied back to $1.0335. The A$ has long been called the proxy for risk and global growth by me. And so with the A$ pushing toward its 200-day moving avg of $1.0345, that's a very indication that it's risk on. I think the A$ will have to wait to get past its 200-day moving avg. of $1.0345, until that Chinese GDP report prints tonight, to confirm that China's economy bottomed out in the 2nd QTR, and is on the rebound. But then, line's of resistance just aren't what they used to be in the currencies. Which is to say that the 200-day moving avg, could be blown past today ahead of the Chinese GDP report. The markets wait for no one..

One currency that's lagging and hasn't joined the party in the streets, is the Canadian dollar / loonie. The loonie got the stuffing knocked out of it yesterday, when Bank of Canada (BOC) Gov. Carney, made dovish comments, and pretty much said that no rate hike is coming. So, the markets in their infinite wisdom (NOT!) took those comments to indicate that the next move would be a rate cut. And the loonie was left at home, not able to join the other currencies to party in the streets.

I had a discussion with a Canadian fellow yesterday via email, and he wanted me to know that the loonie is too strong. I simply said, to look at the Canadian fundamentals. they have been strong, and that's what traders and market participants look for when they want to buy a currency. I'm fully aware that the Canadian Gov't and BOC don't like it one bit when the loonie gets above parity, but unless they want to cut rates, in the middle of a housing problem, or intervene and sell loonies, their hands are tied.

And that's what BOC Gov. Carney, was attempting to do yesterday with his dovish comments. he was doing the old Japanese Jawbone your currency weaker trick. It used to work for the Japanese, but then they never acted on their words, and the markets called their bluff. What will Carney do here? I guess we'll just have to wait-n-see, eh?

Speaking of Japan. Japanese Prime Minister, Noda, is planning on introducing a new round of stimulus by the end of November. Oh boy! What's it going to be this time? Let's see, they've tried just about every stimulus in one's imagination, and done them for 2 decades now. I guess why not try something again, since it's worked the 100 times it failed before! I shake my head, and think about how here in the U.S. we've followed Japan down this road of economic stimulus. Are our leaders willing to keep following Japan down this road? I sure hope not! But, I wouldn't put anything past them!

I have a former colleague that really watches data like a hawk, and when I mentioned how Retail Sales soared in September, he sent me this note." Chuck -- Taking a look at the non-government (a.k.a. seasonally) adjusted figures for September Advanced Retail Sales reported yesterday, year-over-year total retail sales were up only 3% versus a reported 5.4%, while month-over-month figures were actually DOWN 7.5% versus the seasonally adjusted +1.1% reported. " (Thanks Tim!)

So, once again, it's all in how you figure the numbers. as I said recently, my dad used to always tell me that figures lie and liars figure. Now, I'm not calling anyone in the Gov't a liar, I'm just questioning the data they keep spitting out. I'm to the point now that I don't believe one iota of data that comes out of the Gov't. Isn't that sad? Now.. if I were on the Butler patio. you would really get my thoughts on these reports. but, can't do that here, so I'll just move along.

Speaking of Retail Sales. a colleague in NY, Brian, sent me a note yesterday and a link to a story that reported how analysts are looking at satellite images of Retailer's parking lots, to get a true picture of sales. So, I clicked on a couple of the images, and one was from a Wal-Mart, and the other from a Target, and the parking lots didn't scream "Strong Retail Sales"! So. we have another tool to use to expose these reports for what they are.

Yesterday, the Gov't reported that U.S. Industrial Production increased .4%, after contracting 1.4% in August. Hmmm. again, funny how that all appears isn't it? And Capacity Utilization gained .3% from August's 78 reading. Oh! And that stupid CPI report for September printed too, and showed that consumer inflation gained .6% in September VS August, or 2% annualized. But, remember, the Gov't really only looks at the "Core inflation number" which takes out food and energy, because, these aren't things we use every day! And the Core inflation number was only up .1% in the month. Me? I prefer to not look at any of these trumped up, hedonic adjusted numbers.

Long ago, in a galaxy far away, I told you that inflation is a personal thing. and how inflation affects your pocket book/ wallet is up to you and the things you do. Me? Inflation is soaring. and not just 2% in the past year! Of all the reports the Gov't rigs to make look better, this is the one that really ticks me off, but. the markets use the numbers so I have to at least acknowledge their existence!

Gold (&Silver) is attempting to get back on the rally tracks again this morning, with the shiny metal up $3.75 as I write this morning. I find this lagging move VS the dollar, to be very interesting. I have to question what's going on, when the euro is 1.3125, and the rest of the currencies are taking liberties VS the dollar, the price of Oil is up, and Gold lags.

Bloomberg ran an article on physical Gold that I found to be very interesting. "The head of industrial and precious metals trading at Barclays, Cengiz Belentepe, has told Bloomberg that investors are selling their investments in gold ETFs and opting for the safety of allocated physical gold.

According to Barclays, gold holdings in ETF products are growing at a slower pace than in 2004-2009 because some investors may be moving to physical bullion after initial purchases of an ETF.

Gold ETFs have a very significant degree of counter party risk to the many counter parties such as the trustees and the many custodians and sub custodians. The ETF is a second rate form of paper gold in which one becomes an unsecured creditor of a trust rather than the outright, beneficial owner of allocated and segregated coins and bars."

Chuck again. well. I guess I could say, I told you so. but physical Gold either allocated or non-allocated is the preferred way to hold Gold in my opinion. And if we could get all those people that buy the Gold ETF to buy physical Gold instead, the price manipulators would be out of business in a heartbeat!

The British Pound sterling / sterling, really pushed higher overnight, following the euro. But when sterling rallies it really says something about what people think about the U.S. dollar. for the U.K. is no seashells and balloons economy. The Bank of England (BOE) has taken a page out of the Fed's book on keeping Treasury yields low, by buying huge chunks of Gilts (British Gov't bonds) . So, things here aren't good. but when sterling rallies VS the dollar, it makes one sit up and notice, eh?

I received a note from a reader and wanted me to talk about the Mexican peso. My initial reaction was, "do I have to? " in a whiny voice too! The peso has really been one of the better performing currencies this year, and one has to wonder why? Yes, they have 4% interest rates, but where's the "risk premium"? I explained this risk premium a few times in the past, so I won't go there again, but it's important to note many times in the past investors have gotten burned to a crisp investing in pesos. I would want to be paid a premium over the internal interest rate to take on that kind of risk.

But like the Canadians. the Mexicans rely on the U.S. economy and tourists. and since I'm talking about Mexico, my friend, Ed Steer, whom I met 5 years ago in New Orleans, ran a story on Mexican Gold this morning that fits in well here. "The Mexican journalist Guillermo Barba, who last year revealed via GATA that the Bank of Mexico was refusing to disclose the location and form of the 93 tonnes of gold it supposedly had purchased recently...announced this week that he has pried the answer out of the bank, using Mexico's freedom-of-information law just as GATA has been using U.S. FOI law.

Ninety-four percent of Mexico's gold, Barba reports, is said to be vaulted at the Bank of England in London...that is, at the center of the fractional-reserve gold banking system.

So much for Mexico's sovereignty...and so much for Mexico's gold." - GATA (from Ed Steer)

And then the Singapore dollar (S$), reached a 1-year high VS the dollar last night at 1.2160. a very strong move for the S$... but right in step with the strong move in the renminbi. remember these two pretty much go lock-step with each other!

Then There Was This. Jeff Clark of Casey Research's Big Gold, interviewed me a couple of months ago, and I posted the video here a month ago. Well, Jeff Clark has made a big prediction on the price of Gold. Let's go to the tape!

"While many of us at Casey Research don't like making price predictions, and certainly ones accompanied by a specific date, it's hard to ignore the correlation between the US monetary base and the gold price.

That correlation says we'll see $2,300 gold by January 2014.

There are plenty of long-term charts that show a connection between gold and various other forms of money (and credit). Most show that one outperforms until the other catches up. But let's zero in on our current circumstances, namely the expansion of the US monetary base since the financial crisis hit in 2008.

Here's the performance of the gold price compared to the expansion of the monetary base since January 2008." - Jeff Clark

Chuck again. OK.. I can't put the graph on the letter without it messing everything up so, you'll have to take my word that the Adjusted Monetary Base of the U.S. has risen steady since 2008, and right along with that move higher in the Monetary Base is the price of Gold. and the graph is very clear that both are on a path to continue moving higher.

To recap. Moodys left Spain's credit rating a notch above junk last night, thus taking a huge weight off the shoulders of the risk assets, and sent the euro soaring past 1.31, the A$ past $1.0325, and the rest of the usual suspects with similar gains. Even sterling rallied VS the dollar. with all that's wrong in the U.K. what does that tell you about the dollar?

Currencies today 10/17/12. American Style: A$ $1.0335, kiwi .8195, C$ $1.0160, euro 1.3125, sterling 1.6175, Swiss $1.0840, . European Style: rand 8.6560, krone 5.6360, SEK 6.5950, forint 212.55, zloty 3.1235, koruna 18.8855, RUB 30.68, yen 78.70, sing 1.2160, HKD 7.7515, INR 52.87, China 6.2538, pesos 12.81, BRL 2.0315, Dollar Index 79.03, Oil $92.28, 10-year 1.75%, Silver $33.07, and Gold .. $1,749.85

That's it for today. Game 3 this afternoon at Busch Stadium! It's supposed to be a very nasty, rainy day. Too bad they didn't play yesterday, it was sunny at 80 degrees! They should just go with the weather. rather than those set in stone schedules! HA! The 2nd debate was last night, but I preferred to watch the U.S. Men's soccer team qualify for the next round of the World Cup by beating Guatemala 3-1. And without a couple of their star players! Good show! I have to find someone to go to the game with me and sit in the rain today, as it looks like Alex isn't going to be able to answer the bell. OK. it's getting very late! I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 10-17-2012 10:42 AM by Chuck Butler
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