In This Issue   Its pretty much an allout as


first_imgIn This Issue. *  It’s pretty much an all-out assault by the dollar today! *  Chinese & Swedish PMI’s are weaker but above 50. *  The BOJ’s QE announcement sinks yen! *  The Narrowing thing. It’s Tricky! And Now. Today’s A Pfennig For Your Thoughts. China Begins To Take Baby Steps Toward A Convertible Renminbi! Good Day!…  And a Marvelous Monday to you! OUCH! Brother am I hurting all over today, as I used muscles yesterday that haven’t been used in a while! We had two semi-large trees fall in the back of our property, down by the creek (probably the work of beavers!), and for the last two weeks I had been cutting it up, a little bit at a time, so as not to wear myself out, but yesterday, I had the help of Jerry and then neighbor, Paul, and we banged out the whole shootin’ match! So, now I have a huge pile of wood ready for splitting. I’ll leave that for Alex to do. (I’ll have a heart attack IF he actually does it! HAHAHAHA!) There’s some BIG news from China to talk about this morning, but first, I need to tell you that the dollar is in an all-out assault mood this morning, with 95% of the currencies, including Gold, looking at losses this morning, and the few without losses are flat, but could turn negative in a NY Minute, so it’s all about the dollar this morning, especially if you check out the cable news who are dropping the ball BIG Time on the China news, but that’s their problem, not mine, for I’m going to give it to you right here! This weekend, the Chinese Gov’t announced that the renminbi will become directly convertible with the Singapore dollar, effective this morning. Folks, I don’t care if the Cable News or The Wall Street Journal (WSJ) or Reuters don’t care to talk about this development, it’s HUGE news any way you look at it! I saw this, and said to myself, “Self, is this the first step in a freely convertible renminbi? Why, I do believe that’s what’s going on here, Self!”  I told you all previously that I thought that China was really stepping up the pace of their move to replace the dollar as the reserve currency, and this just confirms that thought! I see this going along much like China went about gaining a wider distribution of their currency by signing currency swap agreements with one country at a time. I see them doing the same type of one country at a time, move with convertibility of their currency, until it’s fully convertible all over the world. This won’t happen overnight folks. The first currency swap agreements were signed in 2008. There was other news from China over the weekend, as the latest Gov’t version of the Manufacturing Index (PMI) printed, and was not as strong as I thought it would be. The index number was still safely above the 50 level at 50.8, but a number north of 51 was expected, and so, it was more of the moving along slowly for the Chinese economy, but not stopping for rest, just moving along slowly. Sort of like me in the backyard yesterday! HA! And since the dollar was taking liberties against most currencies overnight, the Chinese decided to weaken the renminbi / yuan, using the weaker than expected PMI as their excuse for doing so.  They didn’t make a Big deal out of the direct convertibility of the renminbi with Singapore, as I’m sure they would have liked for no one to notice. The U.S. news agencies complied, eh? And get this. The man who is the chief executive officer (CEO) of the world’s largest sovereign wealth fund, Yngve Slynstad, says that even though assets from China only make up about 1.5% of the $860 Billion Norwegian Wealth Fund’s portfolio, he believes that almost all investment decisions are affected by what happens in China.  He didn’t say the U.S., Japan, the Eurozone, the U.K., he said China. Makes you sit back and think about all the things I’ve told you regarding China over the years, they all seem to be coming true, don’t they?  Well. So,  it’s all about the all-out assault by the dollar today. UGH! That’s crazy, I don’t care what side of the fence you’re on, how in the world can traders and investors take the dollar to this all-out assault mode today?  I explained last week how QE 1, 2 & 3, isn’t going to end quietly, that the Fed had announced that when bonds that they bought and hold, mature, they will take the proceeds and invest in another bond. Thus keeping the Fed’s balance sheet at more than $4 Trillion, and allowing them to keep their hands in the bond markets’ cookie jar. But that’s not the only thing on my mind today regarding the currencies, so, let’s open this can of beans and see what’s inside, eh? Well, last week the Bank of Japan (BOJ) Gov. Kuroda, really opened Pandora’s Box of currency losses for the yen, and the bleeding hasn’t stopped yet. On Friday, we saw a whole 2 figure loss in yen, and overnight we’ve seen another 2 whole figure loss in yen. I was talking with a trader friend on Friday, and I told her that when I started in this business 22 years ago, yen was 124. And the way things were going, it wouldn’t surprise me to see it there again, with the way the Japanese Gov’t and BOJ keep pushing it downward.  I find this downward move in yen to be quite interesting, as it wasn’t that long ago, that people kept talking about what a miracle it was that Japan had twin deficits, (Current and National Gov’t) but yet the yen was still strong, and why couldn’t that be the same for the dollar? Uh-Oh. Looks like that “miracle” has been shattered, just like the one here in the U.S. with our twin deficits and a stronger currency will be eventually. It takes a while for the markets to get out of bad habits and wake up to smell the coffee, but eventually they do, and when they do, they go at it with a vengeance, like they are doing with yen right now. There comes a time when the markets realize what I’ve been telling you for a while now, that Japan is a basket case.  Of course I’ve not been a fan of what’s going on with the twin deficits in the U.S., but we’re not here with yen, just yet. But also remember what I’ve been telling you for quite a few years now. That the U.S. is turning Japanese, yes, I really think so. I loved this quote from David Stockman. He said that “The BOJ had jumped the shark tank  and now the Machines, Madmen and Morons are Raging”. Whoa, there  David, I would love to say those things, but I get my hands slapped, but as long as you say them, we’re good to go! So, keep the quotables coming! The Aussie and New Zealand dollars (A$ and kiwi respectively) are both on the downswing this morning. Last week it was the interest rate differentials helping the currencies like A$ and kiwi, real, ruble, and rand, but that tricky wording that the Fed used in their press conference on Wednesday last week, got the dollar bugs thinking that these interest rate differentials will soon be narrowed. One of my wife’s fave songs, is (to me a strange choice, but to each his own) the song: It’s Tricky.   You know, It’s Tricky to rock a rhyme, to rock a rhyme that’s right on time, It’s Tricky.  And that’s how I feel about the stuff going on in these two currencies.  The key here is that the dollar bugs think the interest rate differential will be “narrowing” soon. Hmmm. That does NOT mean that the interest rate differential that the currency owns over the dollar is going away, it simply means it could be getting “narrowed”, and for that reason alone, the dollar bugs are all over the place now? It’s Tricky folks. The 1.5% rate hike that the Central Bank of Russia (CBR), pulled off last week, helped the ruble one day, and since then it has been of no help, as the ruble continues to slide further and further downward. There’s a fragile peace in Russia and Ukraine and winter is beginning in the region. I just don’t see how the fragile peace that’s there now will be threatened, as the bitter cold, snow, and winter weather sets in. In fact, I would think that given the weather, the fragile peace could grow stronger. I’m grasping at straws here folks, as I’m looking for something, anything that would wrap a tourniquet around the ruble. Shoot Rudy, if adding 1.5% in a rate hike can’t give the ruble any more love than a one day and done shot, you can see why I’m grasping at straws. The Swedish krona is flat today, which is strange given all the bad news that has come out of Sweden lately, and with the dollar taking liberties against the currencies. We also saw Sweden’s PMI (manufacturing index) drop from 52.5 in September to 52.1 in October. Sure it was still well over the line in the sand number of 50, but it did weaken, which should not have been a reason for the krona to buck the dollar’s all-out assault today. But it is, what it is, and I shouldn’t look a gift horse in the mouth, eh? The Brazilian real is opening up this morning with a bee in its bonnet.  So, it’s nice to see that the “Narrowing rate differential” talk for the dollar isn’t carrying any weight here in Brazil. Recall that the Brazilian Central Bank (BCB) hike rates last week, and I went out on a limb and said that I expected rate hikes at the next 4 meetings, and I guess the markets are figuring that out about now too, so the real bucks the trend of the dollar’s all-out assault this morning. I’m seeing a data print flash on the Bloomberg this morning. Apparently, Honda, Rocktober Auto Sales were up 5.8%… Unfortunately, the estimates were for an increase of 7.7%… So, 5.8% is nice, but it’s not 7.7%, eh? The U.S. Data Cupboard was gloomy on Friday. Personal Spending fell -.2% in September, disappointing those that thought it would increase .2%, and those that thought August’s .5% was the beginning of a strong economy, after printing flat in July.  As long as personal consumption / spending is responsible for over 70% of GDP, this is not good news.  And one could actually say that since August was a “back to school” month, with lots of spending going on, that the 3rd QTR spending was atrocious.  I know, I know, long time readers are saying right now, but Chuck. You used to get upset when we spent more than we made, and now that’s no longer a problem, you say we’re not spending enough!   Ahhh grasshopper. Yes, I don’t like it when we spend more than we make, and looking at the Personal Income data, it certainly wasn’t very good either, rising .2% in September.  But, here’s the kicker. Personal Income should be much higher and each month should be more than the Spending component. except maybe in August, December, and April.  So, the data is all whacked-out as far as I’m concerned, and right now the problem, as the markets see it is, there’s not enough spending for the economy to grow, which goes along well with the disappointing Retail Sales data we’ve also seen lately. And last Friday (Halloween), I told you that Gold had fallen below $1,200. Well the slide continues this morning, and Silver has a $16 handle, which is better than on Friday when it was a $15 handle..  I have to say that these downward drops in the commodity prices seem to be overdone, by quite a bit. Usually when you see stuff like this, you see a bounce-back. We are well below the production costs of Gold, and remember the story I told you a week or so ago, about the head of the largest Silver producer, saying he was not selling the Silver he produces until he breaks the paper trading manipulators? Well, eventually a there has to be a shortage of supply problem.  Geez I would love for his plan to work, now that would be something, and I wouldn’t nominate him for leader of the free world! HA! There is some good news in the metals this morning though, as Platinum and Palladium are booking gains VS the dollar. These two have gotten caught up in the Gold price drop, and they should have been. They are dual metals with investment and industrial uses, and shouldn’t get brought down when the price manipulators go after Gold.  Well, that’s my thought and I’m sticking to it! Before I head to the Big Finish today. I wanted to point out what a great job, my longtime friend, and Big Boss, Frank Trotter, did with the Sunday Pfennig & Pfriends piece yesterday. He laid out the fallacy of a cheap currency. Something I’ve tried to get across in these pages for many a year to you dear readers, but leave it to the Big Boss, to drive the point home, in stunning style. For What It’s Worth. Well, this is more or less more of me here. Frank was talking about the cheap currency fallacy yesterday, and that got me thinking about the cheap Oil price fallacy. Sure, everyone is jumping up and clicking their heals right now because the price of gas at the pumps is dropping. for now.  You see there’s a major problem brewing in our Oil shale production. There have been 19 shale rigs that have already gone offline just last week!  What you have here is the same thing going on in Gold. The price of Oil has fallen very near below the cost to produce it.  Fracking Operations have a cost of $75 a barrel, and this morning, the price of Oil is $80 and change.  So, while we were on our way here with something good (cheaper gas prices, from cheaper oil prices), the getting’s not going to last. Then we’ll have to import more Oil and guess what our friends (NOT!) at OPEC will do with the price of Oil?  So, with just about anything in life, we have to be careful with what we wish for, eh? To Recap. The Big News from China this weekend is being glossed over here in the U.S. because it’s not about the mid-term elections tomorrow! But China announced that beginning today, they will allow direct convertibility of the renminbi with Singapore dollars. Just a first baby step to full convertibility. And what Chuck things is a one-country at a time deal for convertibility of the renminbi. Chinese PMI was weaker but still above 50, and Sweden’s PMI was also weaker but above 50.  the U.S. Data Cupboard had some very weak spending data on Friday, so scary for the economy, it deserved to print on Halloween! And Gold continues to slide, and to Chuck it appears to be overdone at this point. Currencies today 11/1/14. American Style: A$ .8715, kiwi .7755, C$ .8860, euro 1.2495, sterling 1.6005, Swiss $1.0365, .   European Style: rand 11.0330, krone 6.7725, SEK 7.3810, forint 247.05, zloty 3.3755, koruna 22.2430, RUB 43.35, yen 113.70, sing 1.2890, HKD 7.7550, INR 61.40, China 6.1525, pesos 13.49, BRL 2.4750, Dollar Index 87.18, Oil $80.70, 10-year 2.32%, Silver $16.12, Platinum $ 1,242.00, Palladium $807.50, and Gold. $1,171.77 That’s it for today. Whew! Our lambs, I mean Rams, pulled out a win in a crazy ending to the game yesterday. And my beloved Missouri Tigers won on Saturday, moving them into first place in the SEC East, as Florida upset Georgia at EverBank Field in Jacksonville! I didn’t have many Trick-or-Treaters on Friday night, bummer! And it was pretty chilly sitting outside, by myself waiting for them to come, but very few made it up the driveway to the front porch. Little Delaney Grace was Anna from Frozen, and her little brother was Olaf, the snowman from the same movie. Cute as can be! And Braden finally got with the program and put on his Batman costume, but refused to wear the cape! (hey, he had to win something with that fight!) All of them were very cute!  I hope your Halloween was grand. Went to breakfast with my good friend Duane on Saturday and ran into our old colleague, John Kaupisch! He looked great, as retirement has agreed with him. He said, he “highly recommends retirement”. Both Duane and Chuck laughed because we were both talking about that before John walked up to us!  Alrighty then, I hope I didn’t miss any birthdays or anything like that. it’s time to get this out the door. I hope you have a Marvelous Monday! Chuck Butler President EverBank World Marketslast_img

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