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In This Issue.

* ZEW soars for 3rd consecutive month.

* RBA prints a mixed bag-o-nuts.

* Chuck lives in the past.

* No better off than 6 years ago .

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

FOMC Begins Two-Day Meeting.

Good day. And a Tom Terrific Tuesday to you! Another day passed by without a military strike on Syria, and with that day passing, the risk of that happening fades a little. Sure the Syrian leader is buying time with the U.S. but as far as I'm concerned, buy all the time he can! As the risk of a strike by the U.S. on Syria fades a bit each day, the collar gets loosened around the Emerging Markets' necks. Then add in the good news that comes in weekly from China, and what looked to be a drop into the deep dark abyss for the Emerging Markets just a few weeks ago, has turned out to be a false dawn.

Good morning! For those of you who read this letter in the morning that is! I guess I could do a Truman (the movie) and say, "in case I don't see ya, good afternoon, good evening and good night"! The Pfennig is a good read any time of day! OK, Chuck, enough back slapping! Get to work!

OK. Well, the currencies seem to be still in control although off their lofty levels of yesterday. After I signed off yesterday, the currencies gave back some of their gains, but not much, just some. It appeared to be profit taking. But the new levels after the profit taking are still in place this morning, except in yen, which saw more slippage. The euro is pushing higher after a report showed that German Confidence as measured by the think tank ZEW rose to 49.6 from 42 last month. That's the highest level since April 2010! The ZEW Confidence report attempts to predict economic developments 6 months in advance. So, if that holds true, the German economy will continue to improve, and with Germany being the largest economy of the Eurozone, that's a good sign for the Eurozone, and euro.

This was the third consecutive upside move in the index, which to me says that something is gaining momentum, or pace. Next week, we'll see the color of the think tank IFO's survey, should the IFO also indicate the German economy is gathering steam, then we'll have confirmation in my mind.

The Aussie dollar (A$) which yesterday morning was soaring (up over 1 full cent!) but then saw some profit taking, is back to moving higher again this morning. The Reserve Bank of Australia (RBA), who just last week announced that they had removed the easing bias that was in place, had their minutes print, and once again, the RBA had a mixed bag-o-nuts for the markets to look through. From the notice I received from the RBA, it appears that while they did removed the easing bias, they kept their foot in the door that leads to the rate cut table. But, basically, I think that's just economists, being economists, never really wanting to take a position, or stance on anything, without having an "out". I doubt, and I think the market reaction this morning doubts, that the RBA will cut rates again, and with every day that passes, the window of opportunity for them to cut, closes a little more.

Across the Tasman, New Zealand will have two important prints today and tomorrow. Today, we'll see the size of the Current Account Deficit, and tomorrow we'll see the color of 2nd QTR GDP. (I know, the 2nd QTR was so long ago, why would the markets care about that data now?) New Zealand had been doing a better job of shrinking that Current Account Deficit, but the forecasts have the Deficit widening in the 2nd QTR. And that could weigh on kiwi.

Speaking of Current Account Deficits. Long ago, and far away, in a galaxy far from here. I used to focus on the U.S. Current Account Deficit, for this is what I used to determine in 2001 that the Decline of the Dollar was coming. These days, it's all about the total Debt. But just for fun, I came across an April 2002, Review & Focus, and thought I would reprint a snippet of what I wrote in April 2002. That's over 11 years ago, for those of you keeping score at home!

I was talking about Alan Greenspan here. "In his speech, he hinted that the strong dollar policy might be coming to an end, by highlighting the fact that the Current Account Deficit is "unsustainable". When your Federal Reserve Chairman starts expressing concern about the Current Account Deficit, then we should all become concerned. Of course, you and I were already concerned; it was just nice to see someone in power become concerned." - Chuck Butler from the R&F April 2002.

Pretty crazy, eh? Think about all this for a minute. for 12 years (since I wrote the Decline of the Dollar white paper) I've been talking about our debt, and what it was going to do to the purchasing power of American citizens. That's a long time ago. Shoot Rudy, 12 years ago, the U.S. national Debt was $5.7 Trillion, Chuck had hair, less weight, and few believers.

Ok.. so, much like my music collection, I live in the past! My beautiful bride always says, "can't you play something from this century?" HA! So. I skip forward to today. I just finished the October Review & Focus, and in it, I talk about how Fed Chairman, Big Ben Bernanke, has tried desperately to separate tapering from Monetary Policy (interest rate moves). But the markets aren't buying it. They believe that the two are one in the same. And it's all reflected in the higher borrowing costs. Which is exactly the opposite of what the Fed Heads want to achieve. They've painted themselves into a corner. I think they are going to find it very difficult to get out of that corner. But like I said yesterday when repeating what my mom used to say. You made your bed, now lay in it.

Speaking of living in the past. Did you see the story in the Washington Post about how in a poll by ABC News, More than 6 in 10 Americans say they are not confident that the country will be able to avoid another collapse, with a majority saying Washington and Wall Street have not done enough to thwart one. It goes on to say that 54% of Americans say they sense little or no economic improvement since the worst of the financial crisis, and only one in 10 believe the economy is "a great deal" better..

I've said since the beginning of the financial meltdown that this was a depression, and this latest poll doesn't do anything to prove that thought to be wrong!

So. today's the day the Fed Head begin to gather, to make an announcement tomorrow. So what do Fed Heads do today? Well, they get the board games out! I've been using that line for so long now, that I guess to long time readers they just don't find it funny any longer, but to me, I still get a chuckle out of thinking of Fed Heads like Dudley and Bullard playing Candyland! For the record, I've said that I think the Fed Heads will announce a $10 Billion reduction in bond purchases, evenly divided between Treasuries and Mortgage Backed bonds. And unless they say something like, this amount will increase over time. I think the markets will give them a great big yawn, and move on to the next Big Thing.

But maybe, just maybe, cause you never know (Joaquin Andujar's favorite word) what the markets are going to do. They could react violently to the announcement. So, the risk meter is pointing toward danger tomorrow, folks. I tell you this, so you know to hunker down.

Gold is attempting to wrap a tourniquet around the wounds it has taken on in the past couple of weeks, today as it is up $6 at this moment in time. I told you yesterday about the Goldman report on how they think that Gold could drop below $1,000, which was followed by a report from HSBC that Gold will rise due to physical demand. Well, Goldman was back at it yesterday following up that first report with another that calls for a "more hawkish Fed tapering than the markets expect, which will precipitate the price drops in Gold". Again, be careful here, this could all be Goldman just attempting to lower the price so they can buy it cheaper.

At the top I talked about how the collar was getting loosened around the Emerging Markets necks. Well, that's a pretty broad strokes statement, for all the Emerging Markets haven't participated in the recent recovery. In the overnight markets, China, India, Mexico and Brazil all saw their currency values get some taken off the top. But that's just a one-day move. These currencies have moved pretty far, pretty fast recently, a pull-back should be viewed as healthy..

Last week, I was doing some reading, and came across some data on Margin Debt. It appears that soaring margin debt is back to 2007 levels. I also read that art is really "in" again, and seeing prices soar. So, I guess because I'm living in the past all the time, I see these things happening now, and it reminds me of that was going on before the Lehman Bros collapse and the financial meltdown. I'm just saying.

The U.S. data cupboard has the stupid CPI data to report today. I file this under the "who cares" file, which immediately gets deep sixed! The other piece of data will be the TICS Flows. Recall that these used to be important to the markets, but not any longer, as they figured out that net foreign purchases don't matter, as long as the Fed buys the majority of the Auctions.

Before I head to the Big Finish. Last week I told you that the European Finance Ministers were meeting and there was to be a vote in the European Parliament on the Single Supervisory Mechanism (SSM). Well, they voted "yes" and created the SSM. Supervision will now be transferred to the European Central Bank (ECB). Germany did not support the creation of the SSM, which is square one to a single issue bond for the Eurozone. One hurdle is out of the way.

For What It's Worth. Another treat this morning. The genius of Richard Russell! Here's Richard Russell talking about The Fed, the dollar, interest rates and the debt.

"Question -- where is the government going to get the additional money needed to manage the debt? Easy, the Treasury will just issue more bonds. And who will buy the bonds? Certainly not Japan or China, they are trying to unload their cache of Treasuries. Well, as usual, the Fed will buy the bonds -- hasn't the Fed been buying all the government's debt for months? But as all this new money is being created, won't this flatten the dollar and cause inflation? Maybe, but we'll worry about that later -- if it happens.

Why guess when we have charts that let us see exactly what is happening. Below we see the US dollar. The dollar has fallen below both its 50-day and 200-day moving averages. Recent weakness in the dollar is probably due to the mounting budget and debt concerns.

What about interest rates? Below we see the rate on the bellwether 10-Year Treasury Note. The rate has doubled since earlier this year. The normal rate, without QE, is thought to be about 4-5% As these rates rise, it pushes the national debt to new highs -- there's nothing more powerful than compounding our debt with increasingly higher rates."

Chuck again. Yes, while it might now be a big deal today, you have to think about how the higher interest rates will just ratchet up the debt. And as I said above, while Big Ben Bernanke thinks he may have explained that tapering is not a change in monetary policy, I think he's going to find out that the markets don't believe it. And that spells higher rates, whether he wants them or not!

To recap. The lofty levels for the currencies yesterday morning saw profit taking chop some off the top of their values as the day went on. This morning, a handful of currencies are stronger, with A$ once again leading the pack. The euro is stronger on the ZEW German Confidence report soaring higher for the 3rd consecutive month. And Gold is attempting to gather some wind in its sails as it is up $6 this morning.

Currencies today 9/17/13. American Style: A$ .9350, kiwi .8205, C$ .9695, euro 1.3360, sterling 1.5915, Swiss $1.08, . European Style: rand 9.8375, krone 5.8890, SEK 6.4675, forint 223.90, zloty 3.1590, koruna 19.2695, RUB 32.33, yen 99.20, sing 1.2605, HKD 7.7540, INR 63.35, China 6.1571, pesos 12.94, BRL 2.2835, Dollar Index 81.14, Oil $106.05, 10-year 2.84%, Silver $21.96, Platinum $1,438.06, Palladium $707.98, and Gold. $1,321.32

That's it for today. A sad day in Washington D.C. at the Navy yard yesterday. Thoughts are with those folks. Cardinals have a chance to put some ground between them and the other teams and blow the opportunity, UGH! One of the craziest stories I've heard lately is how the father on the Duck Dynasty show (real life) was once the starting quarterback in college, ahead of the Hall of Famer Terry Bradshaw! He quit football because it interfered with duck season! They showed a picture of him in college the other day on TV. Crazy! Everybody was gone yesterday at home, so I got in a great nap! The new issue of the Evolving Markets MarketSafe CD is up on the Website now, so don't delay, this is the absolute last issue! And with that. I hope you have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 09-17-2013 5:00 PM by Chuck Butler
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