A Return Of The Carry Trade?
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In This Issue.

* Currencies & metals rally.

* Gold gains $18!

* Japan to launch new stimulus.

* Chilton not ready on silver manipulation findings.

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

A Return Of The Carry Trade?

Good day. And a Tom Terrific Tuesday to you! I just saw the cutest Commercial on TV. It's an ad for a home alarm system, and the home system in the ad had cameras. Then it goes to a little boy in his bed, on his IPad watching the fireplace which is all decorated for Christmas. Then his sister joins him, and while watching, they see Santa arrive, and their eyes become as big as saucers. The kind of magic you only see in kids. Each year, go and read the Night Before Christmas to my darling daughter Dawn's kindergarten class. I get that same look from the kids when my voice rises and I say, To the top of the porch to the top of the wall, now dash away, dash away all!

OK. Long time readers know that the closer to Christmas we get the more I become a kid again. So, I had better stop there.

The U.S. dollar was in the "Christmas mood" of giving yesterday. Giving away value that is! Yesterday morning I told you that the bias to buy dollars had ended and the currencies and metals were rallying VS the dollar. Well, that rally continued throughout the day, although for the currencies the major move was over. But not so for the metals. Gold continued to add to its value all day and soon had doubled the gain that was already on the books in the morning. At one point of the mid-day trading, Gold was up $22. It ended up $18 on the day, which is pretty darn good in my book!

The euro has gained back to 1.28,which is surprising given the news that came out late yesterday. Moodys announced that France's AAA sovereign bond rating was being dropped by one notch, due to the country's long-term economic growth outlook, which is negatively affected by multiple structural changes, and the outlook remains negative. So. while not good for France's ability to get lower rates on bonds issues, this move has apparently been shrugged off by traders. Which once again proves the point I've made for many years now. The euro is the offset currency to the dollar. if traders believe the dollar is a sell, the euro will gain, no matter what's going on in the Eurozone.

I told you yesterday that the Big thing going on was going to be the release of the Reserve Bank of Australia's (RBA) meeting minutes where they surprised the markets and left rates unchanged. And while that thought held true, the meeting minutes weren't as upbeat as I thought they would be. The RBA's minutes revealed that while they thought leaving rates unchanged was prudent, they were scared by inflation pressures.

Now don't get me wrong, I love a Central Bank that sees inflation pressures before they get out of hand, and acts accordingly. But, I was looking for upbeat talk from the RBA, and I didn't see it in the minutes. Instead I got this about inflation. "In addition, the latest inflation data, while not a major problem, were a bit on the high side, and the gloom internationally had lifted just a little."

So. The Aussie dollar (A$) wasn't able to really gain any traction on the meeting minutes, as I thought it might, IF the minutes were upbeat. and they weren't! That's OK. The A$ is back to knocking on the door of $1.04, which I think is a very good value level for the A$... But that's just me.

I've seen two different charts lately that show a definite head and shoulders for the dollar. Which is not a good thing. However, the dollar short positions in the futures market has been narrowing lately. The latest reading of the IMM positions showed a drop of 20,000 dollar short positions. That's the 4th consecutive week that the dollar short positions have dropped. But remember before this narrowing of the short positions held, the short dollar positions had reached some very large levels. Euros, Swiss francs and pound sterling, all were reversed in this narrowing of short dollar positions, but. A$ positions gained 8,000 contracts!

So. if you look at the trading that has been going on in recent weeks. The A$ gets most of the love when the dollar is getting sold. And when the dollar is getting bought, like late last week, euros, francs and sterling see most of that action on the selling side. The futures positions don't always play out in the actual markets, but on occasion they do.

Speaking of charts. I was looking at this chart that I've been following for some time now. it's a graph of the Japanese yen, that's on top of the 2-year U.S. Treasury Note's yield. For the last two years, these two totally different assets moved in sync with each other. As the yen's price went down (remember that's a gain), so did the yield of the 2-year Treasury Note (remember that's a gain), and vice versa. But then a funny thing happened last week, and for the first time in two years, these two broke away from each other, as yen was sold, and Treasuries were bought in the flight to safety. I tell you all of this because it's not often you see two assets break away this quickly. and leads me to believe that we'll either see them join back up or that yen is about to take a ride down the slippery slope. Now, I've been calling for yen to take that ride for a couple of years now, and I look pretty stupid with egg all over my face on that one. But, this could be it.

And once again proving that if the first 20 attempts to stimulate an economy didn't work, there's no reason to not attempt to implement another one. Japan is getting ready to reach into their budget reserves one more time and launch a $12.3 Billion round of stimulus. I just shake my head and wonder what they expect will happen this time. what makes this round of stimulus different from their other stimulus packages? As Edwin Starr says. Nothing, absolutely Nothing, say it again!

Another thing that's not going to help the yen remain strong in 2013 is the word spreading around that major brokerage houses are calling for yen to be the funding currency of the new carry trades. Let's face it, there's not the bang for the buck there once was in any carry trade, but there are still opportunities, albeit smaller. For those of you new to class. the Carry Trade is a trade whereby an investor sells short a low yielding currency (so his carry cost is low) and takes the funds and buys a high yielding currency (so his interest income is high). And as long as the two currencies don't get out of whack, this became a very profitable trade "in the day".

Well, if Japanese yen is going to weaken, which I believe it will, then selling it short is a great trade because you'll get to buy it back to cover the short (one day) at a cheaper price. So, if the Carry Trade is coming back, look for yen to weaken because of the short sales, and currencies like A$'s, Mexican pesos, S. African rands to benefit.

Talk about added risk though. buying the peso or rand is not high on my hit parade, folks. these are very volatile currencies, and therefore don't make good holding currencies for the Carry Trade.

Hey! Did you see that Sales of Existing Homes here in the U.S. increased in October? And for once the increase in sales didn't come because of a price drop! So. apparently the prices of the existing homes have dropped enough to spur sales. That's how it's supposed to work, folks! There's still plenty of supply, which is a problem, but if this pace of sales can continue that supply of homes will narrow. Unfortunately, we're heading into the winter, and that's traditionally a slower period of home sales. But we'll just have to wait-n-see, eh?

Do you chart the price of Oil? Well, if you do, you'll confirm that the price of Oil has risen $4 in the past week. Remember last week, when I said that we had seen these drops in the price of Oil before, only to see it rebound? Looks like this is one of those cases. but then $89 is still pretty cheap considering where it was just a couple of months ago.. ($99)

And this recovery in the price of Oil the past few days, is lending a helping hand to the petrol currencies like: Norway, Canada, Russia, Brazil, and others. But then, Brazil needs all the help it can get! The Brazilian Gov't is still pushing the envelope to real weakness, folks. I thought they were finished, but apparently not. The real at 2.08 is pretty weak, folks. you have to wonder when the Gov't will take off the full court press.

Then There Was This. Well. what I have for you today, is something I borrowed from my friends over at the Daily Reckoning (www.dailyreckoning.com) It's a short video (believe me, it's pretty short, not like those sales videos that come in your email box all the time that take 20-30 minutes to tell you something) of an interview with Bart Chilton of the CFTC. Now, you all know that I believe the CFTC has dropped the ball on the Silver (& Gold) price manipulation regulation. So, let's listen to what Mr. Chilton has to say about price manipulation, by clicking here: http://dailyreckoning.com/bart-chilton-on-silver-manipulation/

Chuck again. So. he believes there's "something going on here" but we have to wait to see what they've found.. In his words, "not today".

To recap. The currencies and metals rallied throughout the day on Monday, and look a little tired this morning. Gold really pushed the dollar around, gaining $18 on the day. Silver joined in rallying back to $33. The RBA's meeting minutes were a dud. Japan is getting ready to launch another round of stimulus, as if this one will work, when the other 100 or so didn't! (an exaggeration on my part!)

Currencies today 11/20/12. American Style: A$ $1.0390, kiwi .8165, C$ $1.0045, euro 1.2810, sterling 1.5920, Swiss $1.0630, . European Style: rand 8.8610, krone 5.7515, SEK 6.7520, forint 220, zloty 3.23, koruna 19.8285, RUB 31.35, yen 81.50, sing 1.2250, HKD 7.7515, INR 55.09, China 6.2330, pesos 13.09, BRL 2.08, Dollar Index 80.95, Oil $89.06, 10-year 1.63%, Silver $33.04, and Gold. $1,730.90

That's it for today. WOW. I went the whole letter and didn't talk about U.S. debt! Amazing! Our Marketing guru, Jason, is in St. Louis for meetings and I got to spend some time with him yesterday. Just trying to get World Markets more well known. We are having some work done in our basement this week, so I can't go home and sit in my recliner and rest. But it's only a week, so no biggie. I received my invoice for my spring training tickets yesterday. That allowed me to drift off in imagination that I was down in Jupiter, Fla. Sitting in my seat watching my beloved Cardinals play day baseball! I'm ready now! Uh, Chuck. you've got to wait 3 more months! UGH! Oh well, I can dream now! I'm late today, because. the dressing and wrap I put on my leg each day, sometimes takes me longer to do. and this morning was one of those days that I was ready to scream at the walls, but everyone was sleeping in the house so I didn't. Oh well, I carry on in spite of these stupid things! HA! I hope you have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 11-20-2012 1:03 PM by Chuck Butler