Draghi Ties The Euro To The Tracks!
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In This Issue.

* The dollar remains in the driver's seat.

* Swedes have a hung Parliament .

* Scotland vote is this Thursday.

* FOMC meeting this week .

And Now. Today's A Pfennig For Your Thoughts.

Draghi Ties The Euro To The Tracks!

Good Day! . And a Marvelous Monday to you! What a great weekend! The weather was Chamber of Commerce like on Saturday and Sunday, the Cardinals swept the Rockies, my beloved Missouri Tigers won and so did the Rams! WOW! A Trifecta of sports teams winning! And I got to be outside all weekend enjoying it all! I also got to do a lot of reading this weekend, so that usually means I come in loaded for bear. But not today, all the stuff I read was long winded, and would take a week to write about it! So, I'll give you snippets as we go along in the next couple of weeks. But not this week, as I will be gone tomorrow through Friday.

And what a week it will be. possibly that is! The U.S. Data Cupboard is chock-full-o-data this week, The FOMC meets on Wednesday, the Scottish Independence vote is Thursday, The Shanghai Gold Exchange opens this week, and we saw some Chinese data over the weekend to start the week! So, just that stuff alone is enough for one person to write about, so I had better quit dawdling and get to work!

Front and Center this morning, the dollar remains in the driver's seat, Ooooh Drivers Seat. That seems like a I'm playing a broken record but we might as well get used to it, for I've said this over and over again, this dance is gonna be a drag. No wait! I've said, that we would see a short-term dollar rally this fall, and given the way the weather has already chilled off, I guess fall has already gotten here! It's about bounces. Think about that. The dollar was about to fall off the cliff earlier this year, remember that? The euro was climbing steadily to 1.40 and was ready to take off once again, when the rug was pulled out from beneath the euro, and all the focus shifted to the U.S. on a dime. A bounce. In the markets, they call this a dead cat bounce, (no animals were hurt!) it has many other names, but that's about the nicest thing it is called.

So, this weekend, while my beloved Mizzou Tigers and Cardinals were taking care of business, the Chinese printed some economic data, and while it was still "representative" it was weaker than expected, so let's go through this. Chinese August Retail Sales grew at +12.1%, matching the gain in July, and was expected to grow at 12.2%, so no biggie there, in fact a pretty hefty Retail Sales report I would say! Industrial Production though only grew at 6.9% (year on year) or 8.5% (VS July), and the expectations for both was 8.8%... So a very disappointing print for the Chinese. Today, the Chinese are expected to print their latest Foreign Direct Investment figure, which should be pretty interesting given that July's print showed a decline of nearly -17%!

Also this past weekend, Sweden held an election, and things are all muddied up, with a hung parliament. The thing that scares me the most, is that the party that won the majority of the seats (43.7% VS 39.3% for the incumbent party) is the party that was in power when Sweden had their financial meltdown in the 90's. But this election became a vote against immigration. And as we've discussed many times in the past, a hung parliament is uncertainty, and uncertainty is to currencies like kryptonite is to Superman! So the krona is once again on the chopping blocks this morning, and just for good measure, the Norwegian krone is selling off to in sympathy to its neighbor.

I did a lot of reading this past weekend about the Eurozone, the euro, the European Central Bank (ECB) and ECB president Draghi's desire to do all-out Quantitative Easing / QE like the U.S., U.K. and Japan have done. I still believe that Draghi has many hurdles to jump to get the ECB in the QE Club, but that's not going to stop him.. The euro has gotten tied to the tracks by Draghi who's dressed up like Snidely Whiplash and in dire need of Dudley Do-Right to rescue the single unit. I'm really surprised and disappointed that I'm writing about Draghi doing dastardly things to the euro, for he was the one that said a year ago, that the ECB, of which he is the President, would do anything to protect the value of the euro.

The funny thing, not funny ha-ha, but funny is that the markets never made Draghi do anything to prove that he wasn't kidding when he said those words last year. Not since the days of Mr. Yen, Sakakibara, or Robert Rubin, have I seen an officials words without action, move a currency. But now all that good that Draghi did for the euro is circling the bowl. I still think that there's a slight chance that Draghi is trying the same thing now. Talk about stuff without actually having to do it. But that's a very slim chance, folks, as it appears that Draghi has gone to the dark side. Where the Greenspans, Bernankes, U.K, and Japanese Central Bankers all frolic and play. Sort of like Puff the Magic Dragon!

The Aussie dollar (A$) slipped below 90-cents overnight, but bounced quickly back over 90-cents and presently resides around .9025. There's no real data in Australia this week, so I see the A$ bouncing around that 90-cent figure a lot. I talked last week about the Reserve Bank of New Zealand (RBNZ) and their shift from thinking that they had 100 Basis Points of rate hikes still to do next year, to having only 50 Basis Points of rate hikes to do next year, and how the markets took that out on kiwi. Well, a few days have passed now, and the markets are beginning to forget the pain of that change by the RBNZ.

Well, as I said at the top today, the FOMC will meet this week. The Fed's Open Market Committee, is where rate decisions and other policy decisions are made public, so this is a Fed meeting week. And with that will bring about another chopping of the Quantitative Easing/ bond buying/ money printing/ debt monetization/ crack cocaine for the economy. I've been a huge believer that the Fed will have to come back to the QE table in the near future, even though they think they're walking away from it at the next meeting.

I especially like that call since I've read that the great analyst and author, Richard Duncan, sees it that way too! I have a snippet from an article by Richard Duncan for you in the FWIW section today. I really don't think you'll want to miss that! But here's the thing that really gets me. When the Fed does come back and begin bond buying/ QE/ all those things above, will I get a BIG FAT bonus? Will I get a HUGE notice from the media that I was the one that first said that the Fed will have to come back to the QE table? Or how about a slap on the back, and some encouraging words about how even a blind squirrel can find an acorn? Probably none of the above, really.

So, meanwhile back at the ranch. I half expect the Fed to sound a bit more hawkish at this meeting, but then the other half of me thinks they'll remain dovish. Last month's Jobs data was awful, and the data around the jobs hasn't exactly been bright and shiny, now has it? No, it hasn't. But the Fed is between the proverbial rock and a hard place right now. They know the markets want them to sound hawkish, but they just don't have the ammunition to do so, with full conviction. So, in the end, we'll probably be more confused after this meeting than we were before it!

Well, Gold is up a few bucks this morning, but we all know how shaky that can be given the NY boys and girls haven't arrived at their desks yet. But the Shanghai Gold Exchange (SGE) opens of business this week (the 18th). This has been long awaited, and highly anticipated as the savior for Gold, in that the Chinese aren't expected to allow short positions that are greater than the amount of Gold mined on their exchange. Of course there's nothing in writing about that, it's just that's what the markets are expecting, and thinking that this will be a safe haven for Gold traders, that won't get ambushed by the paper trades.

There's been a lot of thought, and I've chronicled that here in the Pfennig, that the Chinese Institutional Investors have not been participating in the Gold market as they await the opening of the SGE, in which they could make a HUGE splash, and make for a super-duper opening. I would think that's a risk for Gold at this point folks, for if the Chinese institutional Investors don't line up to buy on the 18th, it could spell a long ride on the slippery slope for Gold. not as if the shiny metal hasn't already gone for that ride!

Palladium, which really has seen a ton of selling since hitting $908 on 9/1, finally has a gain this morning. I just finished the October Review & Focus, and in it I talk about the industrial metals, of Silver, Platinum and Palladium and how their recent drop in price is questionable at best. I then go over the thought I wrote about a few months ago, regarding Solar Panels and how Silver will be a part of the Panels. The demand for Solar Panels is skyrocketing and that should be HUGE for Silver. and maybe even cause a shortage of the metal. Hmmm, remember what I told you about what my dad taught me years ago, that there's no such thing as a shortage, it's merely an item that is in need of a price adjustment. And that price adjustment here, would be in Silver's favor, I might add! But it still has to play out. nothing is written in stone here.

And don't look now but India is back in the Gold importing game! India's Gold imports for June were the highest in 12 months! They're back!

On Friday, I saw a great graph that Bud Conrad over at Casey Research included in his latest article. The graph was from the IMF, and it showed how the share of U.S. dollar reserves is declining. In 2000, the dollar share of reserves was about 55%, today it is around 32%, and it is expected to fall to just 18% by the end of this decade! The Pound, and yen also saw their share decline, which Canadian dollars and Aussie dollars ticked up. The euro's share remains steady Eddie during this time. The largest gainer of Central Bank reserves is what's called "unallocated reserves". and The Biggest Loser (sorry NBC) is the dollar. And this is where, I say. "I told you so".

I told you so, long ago, when China began signing currency swap agreements with other countries that they would remove the need of these countries to hold so many dollars in reserve. And looky here! And let's not forget what caused China to begin to do this in the first place. U.S. debt, and debasement of the dollar. But don't let that get in the way of a good story.

The U.S. Data Cupboard on Friday, printed the latest Retail Sales for August, and like the BHI had indicated, it was just OK. not great, not good, and certainly not just right! Core Retail Sales (minus car sales) was just +.3% month on month. But that's all that was expected, so no damage was done. Today's Data Cupboard has two of my fave prints, Industrial Production and Capacity Utilization. Don't expect any great shakes from these prints either! It's not that I don't think there's anything going on in Industrial Production, it's simply that I don't think what's going on is enough to turn this economy around. And the FOMC will have that to think about before they meet and talk this Wednesday.

The Scottish Independence vote is this Thursday, and over the weekend there were 4 more polls, that had 3 of them showing the "no" vote in the lead, and just one showing the "yes" vote in the lead. In the end, I still don't think this will get voted through. But if the Scots did vote "yes", I think it would cause a huge shift of things in Europe. I think we would see these kinds of elections put to voters in Spain, Germany, and all the countries that have a state or area that doesn't agree with the Gov't. So, keep that in mind this week.

And the Central Bank of Russia (CBR) left rates unchanged sighting that they didn't want to put any more pressure on the economy as long as the sanctions on Russia were in place. Recall, I had said that rates would probably rise to combat rising inflation in Russia. I realize that the CBR was in a difficult place here, but, I don't see the sanctions as lasting, but inflation could be if not squashed immediately!

For What it's Worth. OK. In the weekend Daily Reckoning (www.dailyreckoning.com) They took issue with Paul Krugman, (you've gotta love 'em for that alone!) and then had an article by Richard Duncan. I've told you all before that I follow Richard Duncan's writing and his thoughts, so it was great to see that he agreed with me that the Fed will have to come back to the QE table. So, this is just a snippet from the article that's long, as Richard Duncan goes through the things the Fed has done to reflate the economy. Let's pick it up at the end.

"Between the rebound in property prices and the sharp rise in stock prices, household sector net worth increased by $25 trillion (or by 45%) from the low it reached in 2009. It is now 17% above its pre-crisis peak. This increase in wealth was the result of Quantitative Easing. What else could possibly explain it? That surge in net worth clearly created a wealth effect that allowed much more consumption and, therefore, economic growth, than would have been possible otherwise.

It was not a coincidence that net worth rose by $25 trillion at the same time that the central bank was creating unprecedented amounts of fiat money and using it to acquire financial assets. It is certain that QE reflated the US economy by pushing up asset prices. It is not at all certain, however, that the economy will remain "reflated" when QE ends in October. In fact, the odds are quite high that it will begin to deflate again.

Should that occur, the Fed would then have to decide whether to do nothing and allow everything it has accomplished to unravel in a process most probably leading back to severe recession and deflation or else to launch yet another round of Quantitative Easing. I believe it will be an easy decision for the Fed to make. After all, what's a few trillion dollars more (shared) among friends?" - Richard Duncan

Chuck again. I really think it would behoove people to read some of Richard Duncan's books. for years when people would ask me what they should read first when investing in currencies, I would tell them Richard Duncan's book: The Dollar Crisis. He's also written "The Corruption of Capitalism" and "The New Depression". Lots of stuff to read, but they aren't epistles!

To recap. The dollar remains in the driver's seat. This will be a very busy week, as the FOMC meets, The Scots vote for Independence, The Shanghai Gold Exchange opens for business, and the U.S. Data Cupboard is back on board with data prints. China printed some data this past weekend that wasn't as strong as expected but still representative. Chuck questions what Draghi is doing, and points out that if the Scots vote for Independence that we could see these things pop up all over Europe. Gold is up a few bucks this morning, but we all know how shaky that can be.

Currencies today 9/15/14. American Style: A$ .9020, kiwi .8165, C$ .9020, euro 1.2925, sterling 1.6245, Swiss $1.0680, . European Style: rand 11.0225, krone 6.4010, SEK 7.7510, forint 243.30, zloty 3.2495, koruna 21.3450, RUB 38.18, yen 107.25, sing 1.2645, HKD 7.7510, INR 61.16, China 6.1452, pesos 13.25, BRL 2.3380, Dollar Index 84.33, Oil $91.40, 10-year 2.60%, Silver $18.70, Platinum $1,373.63, Palladium $848.00, and Gold. $1,237.82

That's it for today. and for me this week, as I'll be getting on a plane tomorrow morning to head to Sea Island Georgia to speak to the Oxford Club. Chris will have the conn on the Pfennig until Friday, when Mike will take the conn.. At least that's what they told me! I'll be doing a brand spanking new, for me that is, presentation this week, so people in the front row had better be on the lookout in case I stumble through it! HA! My beloved Cardinals recovered quickly this weekend, and now have to extend that winning this week against the Brewers and Reds. Their magic number to the division crown is 10, but there are only 12 games left in the regular season. This is getting exciting again, folks. I know you all are growing tired of me talking about the Cardinals this and Cardinals that, but that's the perks I get for waking up before the farmers to get this to you so early in the morning! I'll be heading to Columbia, MO on Saturday with son Andrew, and Dawn's husband, Jerry, to watch our beloved Missouri Tigers play Indiana. Andrew and Jerry are both graduates of Mizzou, and were fraternity brothers, of which I hear that Alex joined the same fraternity at St. Louis U. Alex dropped by the house yesterday, and wanted his mom to bake him some cookies to take back to the dorm. And of course she dropped what she was doing to bake her baby some cookies. So, I hope my stomach plays ball with me on the planes tomorrow. I did have a pretty good weekend, after Friday morning! So I have that going for me! And with that, I hope you have a Marvelous Monday!

Chuck Butler
EverBank World Markets

Posted 09-15-2014 4:55 PM by Chuck Butler
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