A Triple Whammy Hits The Euro!
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In This Issue.

* And all out dollar rally going on.

* Chuck says no taper until economy says so!.

* Chinese manufacturing hits 18-month high!.

* Germans lash out at U.S. complaints.

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

A Triple Whammy Hits The Euro!

Good day. And a Happy Friday to one and all! I think that today will turn out to be a Fantastico Friday, for the first song out of the starters blocks this morning is the foot shuffling, body swaying, sounds of the Greg Kihn Bank playing their hit song, Remember! Don't know that one? Ahhh grasshopper, go to ITunes and get it! Anyway, I'm in a much better mood to start the day, because of this song! Let's hope it lasts all day! And welcome to November! Long time readers will recall that I'm not a fan of November, for a number of reasons, so the quicker we start it, the quicker it can end!

The currencies and metals sure aren't in a better mood this morning. Yesterday morning I told you how they were sent to the woodshed after the FOMC meeting statement, in which the markets somehow found the Fed Heads to be hawkish, and that led the markets to believe that Quantitative Easing (QE) Tapering will begin in December. Well, that thought, and the thought that Eurozone inflation is falling and that could lead the European Central Bank (ECB) to cut rates, and the thought that the U.S. named Germany a problem country, all brought on a wave of selling in the euro that I hadn't seen since the days of the markets coming to the realization that Greece couldn't pay their bills.

The euro slid right through the 1.36 handle, all the way down to 1.3525. Just the other day we were talking about the euro at 1.38. I would think that we could see at least a temporary halt to the selling and a bounce in the euro, as the markets always seem to realize that they went too far too fast. But the euro is the Big Dog, folks. I've explained all that before, so I won't go into it again, but as the Big Dog goes, so does the other currencies. And Gold? OMG! Talk about another whacking! I told you at least a month ago that I've risen the white flag on Gold price manipulation, that the price manipulators weren't going to ruin my days any longer. So, it will be interesting to see if I can hold to that!

It was interesting to see how the Germans would react to the U.S. naming them a problem country for their policies that promote an export led economy. Well, it appears that Germany didn't take too kindly to being put on the U.S.'s list of problem countries ahead of China and Japan in its semiannual currency report. Here is German Economics Minister, Michael Meister, in the WSJ. "The trade surpluses reflect the strong competitiveness of the Germany economy and the international demand for quality products from Germany. The U.S. should critically analyze its own economic situation. The high debt level in the U.S. which doesn't just unsettle just the U.S. but has negative effects on the global economy." German economist Holger Schmieding, denounced the accusation that Germany is pursuing a beggar-thy-neighbor policy as "nonsense", given the strong euro and a fall in Germany's Trade Surplus with the Eurozone over the past 5 years."

That's letting the U.S. know that they aren't going to sit idly by and allow them to frame Germany as currency manipulators when you have the three biggest currency manipulators, the U.S., China, and Japan our there! And again, as I said yesterday, maybe jealousy is entering into the framework of these decisions by the U.S.?

So, the currencies and metals are still falling in price this morning. Can you imagine what it might be like when the Fed Heads do announce a Tapering? It won't be pretty. But then it will be, in my opinion, a short-lived rally in the dollar, for 3 to 6 months down the road after tapering, the Fed Heads will find out that they shouldn't have gone there, and reverse their tapering. And that's when the dollar would really look to get spanked!

But that's all just speculation of What If the Fed tapers. I told our PR people yesterday that in my opinion that we won't see tapering. Not in December, and certainly not in March or April 2014. Big Ben laid the tracks on this folks. he basically said that when the economy showed signs of strength the Fed would consider tapering. I see nothing in the economy that's going to show strength, and therefore if the Big Ben sticks to his word.

OK, had to stop and sing along, out loud I must add (good thing no one is here but me!) with Billy Joe Royal's great old song, I Knew You When. Remember that one? Oh well. back to work now.

Well. The second of the two Manufacturing Index reports in China, this one being considered as the "official manufacturing Purchasing Managers' Index" and this one showed that manufacturing in China climbed to an 18-month high of 51.4 in October compared to 51.1 in September. I think that more than any other piece of data from China this report really gives the pulse of the economy, and with it hitting an 18-month high, one would have to think that the economy recovery is in full swing now.

And that new is like manna from heaven for the Australian dollar (A$). The A$ is about the only other currency that's rallying against the U.S. dollar this morning. Of course we saw the A$ rallying yesterday morning too, but as the day wore on, that rally faded. But this report from China is worth more to the A$ than the 2nd & 3rd tier reports from Australia that printed the night before, so maybe this rally can get some legs.

The Chinese renminbi/ yuan did finish the month of Rocktober with a gain, but the last 4 days of the month were not gains. I've gone through how I believe this to be just the Chinese showing the markets who's the boss. But when the economy shows strong signs of growth like it did with the manufacturing report last night, the Chinese Gov't will have a difficult time pulling in on the reins. The markets will be champing at the bit to get this party started.. I think that they need to do what the new crazy phase tells everyone to do: calm down and.

It appears that the markets are holding their collective breaths today as Fed Heads, Bullard, Kocherlakota, and Lacker will all speak at some time today. Remember that Bullard has called for an end to stimulus, while Kocherlakota has called for stimulus to continue. I read a very interesting report on seekingalpha.com about how the Fed can only Fail. I'm going to give you the link to the story, because it's too long for me to get into here, and the graphs are important to the story, so, if you're interested, click here: http://seekingalpha.com/article/1774432-the-fed-can-only-fail?source=email_macro_view&ifp=0#!

Debt. I will talk about one piece of this story, and that is about the Total Credit Market Debt (TCMD), which is a measure of all the various forms of debt in the U.S. That includes corporate, state, federal, and household borrowing. It's pretty much everything debt related. It does not include the unfunded liabilities of the Gov't, states, cities, or corporations. TCMD is just debt.

Well, the U.S. TCMD is currently higher than in 2008 which was supposedly what nearly brought down the entire global financial system. The main mover of the TCMD right now is the Fed's monetizing of the debt through QE. But the scary thing is that TCMD no matter what brought it to these levels, is higher than it was in 2008.

Speaking of the Fed monetizing debt through QE. A month or so ago, I talked about the Monetary Base of the Fed and how the graph on the Fed St. Louis' website showed that it, the graph, was going to have to be expanded for the line representing the balance was about to go off the chart. Well, the Fed St. Louis did just that! They expanded the graph! They added another layer at the top that now goes to $4 trillion. The Fed's at more than $3.6 Trillion now. Oh, the tangled webs we weave..

I had to stop again, because my all-time fave Chicago song was playing, and the title of the song reminds me of something that I hope you all feel about me and the Pfennig. "Hard Habit To Break".

The U.S. data cupboard took a break yesterday, only having to deal with the Weekly Initial Jobless Claims, which fell 10,000 to 340,000. and some regional manufacturing reports, that I've now come to the conclusion that they are worthless to follow, for they never give a true indication of what the national manufacturing index will do.

Today's data cupboard will give us the latest color of the U.S. Manufacturing Index (ISM) , which is expected to have slipped a bit, but remain well above 50. In addition we'll see the U.S. car sales for October. I never really get a true indication of what's going on here, as cars sales aren't something that an individual or even family experiences on a regular basis. The ISM report could add some mustard to the dollar rally going on today, so look for that to happen should the ISM surprise on the upside.

Well, before I head to the Big Finish, I wanted to talk a bit about China and Gold. You know, I'm sure and in fact I'm positive, I was the first person to tell you that China was hoarding Gold so that they could back their currency in some percentage, to Gold. That way when China decided to float their currency, they could make certain it was attractive by adding a Gold backing. Well, as an update to what China is doing here, it was reported that Net imports, after deducting flows from China into Hong Kong, were 109.4 metric tons of Gold in September, adding to the 110.2 tons imported in August. It is now thought that China's Gold consumption this year may jump 29% to 1,000 tons. WOW!

And finally on Gold. One of these days Alice.

For What It's Worth. Yes, there's something happening here, and what it is, ain't exactly clear. I saw this on the Drudge Report last night, and it made me immediately think of the old song by St. Louis' own, Bob Kuban and the In-Men, on the Pepsi label. The Cheater. Here's the story that first appeared on a website called: freebacon.com

"More than 8,000 federal workers and contractors with security clearances owe $85 million in unpaid taxes to the IRS, according to the Government Accountability Office (GAO).

The GAO warned that individuals who have significant debt and access to classified documents pose potential security risks.

"About 8,400 individuals adjudicated as eligible for a security clearance from April 2006 to December 2011 owed approximately $85 million in unpaid federal taxes, as of June 2012," according to a report released Thursday.

The GAO examined individuals who have been approved for security clearances in the Department of Homeland Security (DHS), Department of Energy (DOE), and the State Department. Those in the intelligence community and the Defense Department have yet to be reviewed.

Federal law does not expressly prohibit an individual with unpaid federal taxes from being granted a security clearance; however, tax debt does pose a potential vulnerability that must be considered in making a broader determination of whether an applicant should be granted a security clearance," the GAO said."

Chuck again. So. if the GAO knows the people that are behind in paying their taxes, and the GAO believes that they are a risk to security, then why, please tell me, are these people still employed by our Gov't?

To recap. the euro received a triple whammy yesterday and fell through the 1.37 and 1.36 handles very swiftly and with the Big Dog euro finding terra firma sparse, the rest of the currencies and metals took nosedives too! China posted an 18-month high in their manufacturing index, and that has allowed the A$ to be about the only currency to gain VS the dollar today. Germany lashes back at the U.S. for naming them a problem country. Good for them! And U.S. Total Credit Market Debt is well beyond the level it stood in 2008, when it was believed that the level was to blame for the near collapse of the global financial system. Scary, eh?

Currencies today 11/1/13. American Style: A$ .9475, kiwi .8265, C$ .9595, euro 1.3525, sterling 1.5985, Swiss $1.0985, . European Style: rand 10.1085, krone 5.9435, SEK 6.5075, forint 219.35, zloty 3.0965, koruna 19.0940, RUB 32.20, yen 98.30, sing 1.2415, HKD 7.7530, INR 61.76, China 6.1452, pesos 13.07, BRL 2.2465, Dollar Index 80.48, Oil $96.42, 10-year 2.57%, Silver $21.87, Platinum $1,455.85, Palladium $737.45, and Gold. $1,317.16. And it's a Friday, so let's take a peek at the U.S. Debt Clock by clicking here: http://www.usdebtclock.org/index.html

You'll notice that now that the U.S. is back to counting stuff again, the national debt has gone over $17 Trillion. and the Unfunded Liabilities are now over $126 Trillion.

That's it for today. Did you have a grand Halloween? I had the cutest Woody (from Toy Story), Alice in Wonderland, and the Cat in the Hat, that you've ever seen at the house last night! My grandkids were so darn cute! I sat outside with my bowl of candy, and the darn rain kept a lot of Trick or Treaters inside, but eventually they came, and the jokes were pretty lame this year. UGH, but the little ones were still cute. One little girl was dressed in a Missouri Tigers cheerleader outfit, and she did the MIZ-ZOU cheer for me! One of the comedians on TV said something like, too bad the World Series didn't get to Game 7, the players could have dressed up for Halloween, and it would have been cool to see Batman hit a homerun off of Frankenstein! HAHAHAHA! My Tigers hope to get back on the winning tracks tomorrow when they play the Tennessee Volunteers. I just sent a text to Jen telling her I would buy if she would fly for cake donuts this morning. Hopefully she looks at her phone before getting here! And with that. I thank you for reading the Pfennig, hopefully it's Hard Habit To Break! And I hope you have a Fantastico Friday!

Chuck Butler
EverBank World Markets

Posted 11-01-2013 2:45 PM by Chuck Butler
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