The FOMC Throws A Cat Among The Pigeons!
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In This Issue.

* Currencies, metals & Treasuries getting sold.

* Is this the beginning of a change for the dollar?

* Yen drops to a 2-year low VS dollar.

* Chuck breaks down the timeline.

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

The FOMC Throws A Cat Among The Pigeons!

Good day. And a Happy Friday to one and all! It sure doesn't look like it's going to be a Happy Friday for the currencies and metals though. The Fed has thrown a cat among the pigeons, and the markets have scattered on the risk assets. It's a Jobs Jamboree Friday, and I've got more to talk about on the upcoming days of reckoning for the U.S. So. let's get going! This is really ugly folks, so go ahead and skip down to take a peek at the currency roundup, then come back, and I'll attempt to explain!

Well. The FOMC meeting minutes were the watershed event that brought a HUGE dollar rally yesterday afternoon and overnight. The euro las lost 1-cent, the yen is at a 2-year low VS the dollar, Gold has lost $35, and Treasuries are getting sold like funnel cakes at a state fair! What, in the world is going on here? Ahhh, grasshopper, the Fed threw a cat among the pigeons yesterday by saying in their minutes that they thought they would end their latest round of Quantitative Easing (QE) in 2013. For those of you keeping score at home, that's $85 Billion in monthly bond purchases. So, from that you can see why Treasuries are getting dumped, but. the currencies and Gold?

And. did the Fed Heads say when they would end their latest round of QE in 2013? NO! So, it could end up being on the last day of 2013, when they also announce a new round of QE! Did the markets EVER take a moment to think of that scenario? NOOOOOOO! They just went "all in" and began selling Treasuries. The 10-year yield, which yesterday morning was 1.83%, has risen to 1.96% this morning. (remember, as bond yields rise, the price of the bond drops) So, is this the watershed event that could swing a multi-year rally for the dollar? What I'm talking about here is will the rising bond yields, remove the need to hold risk assets? That's what it appears to be saying today. but let me remind you that, we have seen these moves higher in bond yields a few times in the past couple of years, and they didn't end up being too much of anything. Remember, the Fed IS STILL BUYING $85 Billion per month!

I also don't think the dollar has the ability any longer to go on a multi-year strong trend. but then that's just me, as I see the debt being a major problem for the dollar to deal with. But. for now, it's all about the dollar today. Mamma said there would be days like this, Mamma said. Two days ago, the markets were so down on the dollar, the green/peachback looked like it has lost its puppy. Then, the markets thought the Fiscal Cliff Deal would hurt the dollar since it never even addressed debt reduction. Two days later, and the markets think that the Fed saying they would end QEIII in 2013, that it's the end-all medicine to what ails the dollar. I told you long ago, that traders were a fickle bunch.

Well. the markets are also taking a leap of faith in the Jobs Jamboree today. The markets have decided that the U.S. probably kicked some tail and took names later with regards to job creation in December. The ADP report yesterday really surprised the markets by saying job creation according to them increased by 215,000! (140,000 was forecast) The experts believe that the BLS (Bureau of Labor Statistics) will print a 153,000 increase, with the Unemployment Rate remaining at 7.7%... So, to get to 215,000, the BLS will have to get to cooking the books, eh? Come on Chuck, that's like feeding the bears isn't it? Don't encourage the BLS!

In our monthly contest in the office to pick the jobs number, of which I've never won, (imagine that! The boss not winning. hmmm) I'll have to make a guess as to what I believe will be the number this month. Given the ADP blowout of job creation, you would think that I would be going with a number north of 153,000. But, then we've got the 3-month average of around 133,000 a month, and given that in December the Fiscal Cliff was still thought to be a reality that small businesses would have to deal with, I would think the number would be disappointing. But then there's seasonal workers in December. I'm going with 140,000.

The Big thing about the data today, is that the markets believe it will be very good, and they have bought dollars ahead of the data print. Should the number disappoint, as I believe it will, then we could see those dollar purchases unwind. But should the number surprise on the upside, and given the BLS's propensity to play games with the numbers, it very well could, and that would bring about more dollar buying. So. I guess, we have to pay attention at 7:30 (CT) to the announcement.

Well. with the currencies and metals in the woodshed for a beating this morning, I could be Polly-Anna-like and say, Hey! We get to buy at much cheaper levels today! But I'm not feeling very Polly-Anna-like this morning. In fact, I actually feel like I need to go back to bed! But, that's not an option. so I carry on despite my ill feeling.

But we do get to buy at much cheaper levels this morning. Dollar averaging, right? The problem is, that this dollar buying could go on for a few days. At least one currency that is getting sold deserve to be getting sold. The Japanese yen, as I said above is at a 2-year low VS the dollar this morning, as it trades well into the 88 handle. Yen is still relatively strong, folks, so this move weaker has the potential to keep going for some time.

The euro, Aussie dollar (A$), kiwi, pound sterling, and few others are all down 1-cent since yesterday morning. And with Gold down $35 and Silver down nearly $1, this is a real rout of the currencies and metals this morning. There's not much to say to sugar coat it. the markets have taken some words in the FOMC meeting minutes as the gospel, without even knowing the "end date". We'll have to see if this is for real, or just a false dawn for the dollar. I believe it to be the latter, but then that's just my opinion and I could be wrong!

After re-reading the analysis that I gave you of the Budget Deal (BD) yesterday, I realized that I had mentioned two months, but didn't really breakdown the time and the items, and not wanting to sound like the Fed Heads, I decided to write some more on this... so... first up in late February, we'll have the extraordinary measures that U.S. Treasury Sec. Tim Geithner has implemented to avert a Gov't shutdown because of the debt ceiling limit being breached... there will be fight in Congress in the weeks leading up to late February between those that want to willy nilly raise the debt limit, and those that will only do so, if there are some deep spending cuts... Oh. and Geithner has announced that he will leave his post as U.S. Treasury Sec. BEFORE the discussions on the debt ceiling begin. Nothing like getting out of Dodge, eh?

Then we move to early March, this is when the sequestration of the $109 Billion in spending cuts for this year will have to be dealt with... There will be cries from those that believe these cuts, which half are from the Pentagon's budget, will weaken our national defense... This could get really ugly... But. tax increases without spending cuts? That doesn't seem right, and this is where those that want debt cuts will dig in their heels.

And then March 27th... the short term budget fix for funding government agencies expires, and once again, the specter of shutting down the Gov't will be raised... Yes, it's all fun and games until somebody loses an eye! OR a country has to face up to its unsustainable deficit spending habits!

Then There Was This. I saw this last night and it caught my eye. I had noticed that a lot of pundits were saying that the Fiscal Deal that was done this week would allow the rating agencies to back off their threats of a downgrade. I thought. that's strange, there were no debt cuts, and the ratings agencies were all about our rising debt. So, it was interesting to see this print on

"The United States must do more than the recently passed fiscal cliff measures if the country is to rescue its Aaa debt rating from its current negative outlook, rating agency Moody's Investors Service said.

Standard & Poor's said the deal does not affect its negative view of the U.S. credit outlook, and said more work remains ahead for policymakers.

The last minute deal passed on Tuesday to avert potentially devastating tax hikes and spending cuts clarifies the medium-term deficit and debt trajectory of the federal government, Moody's said in a statement.

However, it does not provide a basis for meaningful improvement in the government's debt ratios over the medium-term, Moody's said."

Chuck again. This is going to get really ugly before it's over, IF it ever does get over! I really don't believe that we'll see meaningful debt cuts, and out debts will continue to mount, which will weigh on the dollar.

To recap. The FOMC said that they would end their QEIII in 2013, and that's all the markets needed to sell currencies, metals, and Treasuries! And sell them with force, they did! It's an ugly day for the currencies and metals, and it could get uglier should the Jobs Jamboree surprise to the upside like the ADP report did yesterday. Yen is at a 2-year low VS the dollar, as well it should be, but there's more rot on this vine to be exposed.

Currencies today 1/4/13. American Style: A$ $1.0410, kiwi .8225, C$ $1.0085, euro 1.3110, sterling 1.6025, Swiss $1.0760, . European Style: rand 8.64, krone 5.6075, SEK 6.5570, forint 223.80, zloty 3.1660, koruna 19.48, RUB 30.50, yen 88.25, sing 1.2305, HKD 7.7515, INR 55.07, China 6.2305, pesos 12.82, BRL 2.0445, Dollar Index 80.80, Oil $91.61, 10-year 1.96%, Silver $30.54, and Gold. $1,631.45. And with it being Friday, here's our chance to take a peek at the U.S. Debt Clock, click here:

That's it for today. a great song by the Allman Brothers is playing on the iPod this morning, In Memory of Elizabeth Reed. Alex won his wrestling match last night, his first in over a month after suffering a concussion. I have a new mouse pad on my desk that has pictures of my three grandkids on it. So, now I see their smiling faces while I'm working! Hey! The Orlando Money Show is less than a month away! I have two speaking times, and the Big Boss, Frank Trotter has a main-stage presentation! WOW! I always enjoy the Orlando Money Show, as it's the biggest one that's done, and I get to get away from the cold for a few days! (although it hasn't exactly been warm in Orlando the last two years!) you can check the show out here. I expect to see you there!

Now. go out and have a Fantastico Friday!

Chuck Butler
EverBank World Markets

Posted 01-04-2013 11:31 AM by Chuck Butler