Oops, Did I Say That Out Loud?
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In This Issue..

* A Wild and Wacky Wednesday...                
* FOMC leave stimulus and QE in place...               
* Will G-20 try to throw cold water on commodities?                                   
* GATA receives a letter from the Fed...                                                                               

And Now... Today's Pfennig!

Oops, Did I Say That Out Loud?                            

Good day... And a Thunderin' Thursday to you! It's Thundering and raining here, so I felt that naming today a "Thunderin' Thursday" was bang on! We had a wild and wacky Wednesday yesterday, with the Fed Heads playing the part of the court jester... And... I want to know, right here, right now, why the media isn't blasting Fed Head Honcho Big Ben Bernanke! I'll tell you why they should be, in a minute...

OK... As I said, we had a wild and wacky Wednesday yesterday, as the non-dollar currencies went for a spin on Mr. Toad's Wild Ride, with Big Ben Bernanke in the role of Mr. Toad! HA! That makes me chuckle! Here's the skinny, and what everyone should be up in arms about...

The FOMC meeting concluded with interest rates remaining at near zero... But what happened next was, well, exactly as I said it would happen, but we'll get back to that in a minute... What I'm talking about here is that the Big Ben's band of merry men announced that the U.S. economy's return to growth was insufficient to withdraw stimulus, and that quantitative easing would remain until March next year... WHAT!

HEY BIG BEN! I read in the Financial Times the other day, yes, the Financial Times, that you said the recession was likely over! I also read in another publication that you said basically the same thing... So! If what you told these fine publications is true... Why then do we need stimulus in place along with  Quantitative Easing until next March? You could almost hear Big Ben saying... "Oops, did I say that out loud?" HA!

Doesn't that just tick you off? Big Ben and the President going around telling people that it's all clear and consumers can come out now and resume their spending, only to find out it was nothing but "feel good" stuff... Yes, stuff to make us "feel good"... So we would take our eye off the ball... But not me! You can't fool a wiley old veteran like me, right Jack Milner? I'm not falling for that change-up... And it ticks me off that they thought I was so stupid to fall for that!

Ok... Let's take a trip back to Monday of this week, when I was trying to explain why the dollar had reversed the negativity toward it... I said this in the Pfennig on Monday... "Seriously though, the markets are of the belief that the Fed will keep rates near zero, but will announce that they will begin to remove stimulus, as Head Fed Honcho, Big Ben Bernanke, believes the recession is over...

I think this is wishful thinking on the markets' part, as I really don't see the Fed Heads doing anything, but talking about doing this, that and the other thing. You see, the Fed Heads know all too well that the Commercial Real Estate problems are just beginning and with Unemployment."

I've been more right about what the Fed Heads were going to do, for the last 2 years, than Big Ben!

OK... So, here's where the wild and wacky comes in... The non-dollar currencies were hanging around on a corner trading in a tight range, when the announcement of further stimulus and Quantitative Easing was made... You should have seen the non-dollar currencies begin to run up VS the dollar... It was crazy, I mean in a manner of minutes the euro traded from 1.4765, to 1.4850, and Gold? It was soaring too! But then it was one of those a-ha minutes, and no, I'm not talking about the 80's group singing Take Me On! No, it was one of those head slapping moments when you say... Wow, I could have had a V-8!

Basically, investors figured out that by leaving the stimulus in place longer than originally planned, the Cartel, I mean the Fed, is confirming that the U.S. economic recovery isn't nearly as robust as Big Ben and his compatriots have led everyone to believe.  Stock markets fell, and the Treasury rates rose.

With the stocks backing off, the risk assets of currencies and precious metals backed off VS the dollar... And, we ended the day, where we started it... A wild and wacky Wednesday for sure!

The overnight markets were very confused as to what direction they should take... So, as I turn on the screens this morning, the euro is 1.4775, and Gold is $1,014... About the same as yesterday morning... If you weren't around for the spin on Mr. Toad's Wild Ride, then you would think... "How boring these currencies and metals are"... HA!

The thing that keeps haunting me here with yesterday's stock sell off... Could it be the next leg down that I keep warning you about? Could yesterday's sell off be the harbinger of more selling? We'll have to keep an eye on this, folks... If we see 3 or 4 days of consecutive selling, it could very well be the indication that the next leg down is here...

Well... The other day I mentioned that the dollar could very well be the last man standing when it comes to near zero interest rates, and that could lead to the dollar becoming the next funding currency for the Carry Trade...

Ty brought to my attention this fact that plays quite well with that thought... For the 1st time since 1933, 3 month LIBOR rates in the U.S. (.28563) are lower than Japanese Yen 3 month LIBOR rates (.34875)

And one wonders why, the dollar is getting beaten like a rented mule? (no animals were hurt!)

A reader called in yesterday and wanted to know what I thought regarding... how a new SDR would affect the currencies. (Specifically NOK, AUS, BRL, CHF)

Well... That's a tough one! Because if we do end up with a new SDR, no one knows what the makeup of that SDR will be... So, I can't say how it would affect any currency until we begin down that road to a new SDR... If the current makeup of an SDR is used, then euro, yen, sterling and dollars would benefit... But one has to think that if things come to pass and we start down that road of a new SDR (Special Drawing Rights) that the makeup would be quite different, and could possibly even have some Gold as a component!

So... Sorry, I can't really answer the question, because it's an unknown... I hope my beautiful bride reads this part, as she usually only reads the first and last paragraphs, because she always contends that if I don't know the answer to a question that I just make something up... See, dear? I said I couldn't answer the question!

Ok... G-20 begins today... Look for these knuckleheads to take a toughened stance on speculation, with Oil in mind... I think that all they will do is make things tough for the Commodity Currencies of Australia, New Zealand, Brazil, Canada, South Africa, and Norway... There's also an outside chance that these knuckleheads will attempt to do something to limit the rise in currencies VS the dollar... In other words, prop up the dollar... I'm not convinced they could do that, and I am convinced they shouldn't do that!

Speaking of Norway... The Norges Bank (Norway's Central Bank) did as I thought they would with rates, and what I hoped they would do with their statement... Here's the skinny... The Norges Bank left rates unchanged... But... Said after the rate announcement that "they were CONSIDERING a rate hike"... The Norwegian krone went on a moon shot immediately after that statement.

In the race between Norway and Australia as to which will be the first to hike rates, Norway takes the lead, with that announcement yesterday... But, it really doesn't matter, as no one will get the checkered flag or anything... The thing that makes the difference is that the yield differentials to the U.S. will begin to grow wider... And that, my friends, will go a long way toward currency strength for the currency that rewards investors with higher yields!

Speaking of Australia... The Reserve Bank of Australia's (RBA) semi-annual Financial Stability Review gave a generally clean bill of health to the banking system and noted sentiment among households and business had improved considerably in recent months... But... The RBA went on to caution that it was not strong enough yet... Which then puts the Aussie rate hike forecast further behind Norway's...

In New Zealand overnight... It's been a good week o' data for the Kiwis... Last night, it was the latest Consumer Confidence Index which jumped to a 4 - year high of 120.3 (previous reading was 106)! WOW! So... The highest Consumer Confidence in 4 years! This news helped kiwi to remain above 72-cents... Even with the risk assets sell off...

In Germany this morning... The Business Climate Index, as reported by the think tank IFO, disappointed a bit, as it came in (91.3) lower than forecast (92), but... The 91.3 marked the 6th consecutive monthly increase for the data... So, the trend is still in place...

And it's good to be the yen, eh? I mean, recently, we've seen yen rally when the other currencies rally VS the dollar... And before that, we've seen yen rally along with the dollar... Last night, yen rallied alongside the dollar, and is trading with a 90 handle this morning...

And then there was this... The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. (GATA) that it has gold swap arrangements with foreign banks that it does not want the public to know about. WOW! This is a BIG DEAL folks, as the Fed as recently as 2001 (Big Al Greenspan) denied that these swap arrangements existed...

GATA believes that this letter suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

So guess what I think regarding the Fed now? That Ron Paul's bill to audit the Fed needs to get on a roll! Remember, it comes before a committee tomorrow, I believe, where it will be decided to forward the bill on or kill it... So, call your representative and tell them you believe they should back Ron Paul's bill to audit the Fed!  I've got a bag full of names to call these guys at the cartel, I mean Fed... But, those are verbally used only... Nothing in writing... Hey! This is a family safe letter!

OK... So, to recap... The Fed is leaving stimulus in place along with Quantitative Easing until next March. So much for Big Ben, and the President's claim that the recession is over, eh? The currencies rallied at first on the Fed's announcement, but later realized the rot on the economy's vine has been exposed by the Fed, and then the currencies sold off VS the dollar to end the day unchanged...

Currencies today 9/24/09: .8745, kiwi .7235, C$ .93, euro 1.4775, sterling 1.6220, Swiss .9770, rand 7.3850, krone 5.7630, SEK 6.8380, forint 183.15, zloty 2.82, koruna 17.04, RUB 29.99, yen 90.60, sing 1.4110, HKD 7.75, INR 48.03, China 6.8273, pesos 13.37, BRL 1.7980, dollar index 76.25, Oil $68.36, 10-year 3.41%, Silver $16.81, and Gold... $1,014.10

That's it for today... Cardinals missed a chance to clinch last night, but the magic number falls to 1... Today, our colleague, Don Ries, celebrates his birthday... Don and I have worked together, off and on since 1989... He's our "Bond Daddy"! Or, I guess I should say "Bond Granddaddy"! We had a MarketSafe CD mature this week. It was a 3 year CD in the AIG / Dow Jones Commodity Index, and it returned a little less than 2%... Which isn't anything to write home about, but, as I tell people these days, "it's better to have a return of capital than a return on capital! We're going to extend the BRIC MarketSafe to another funding date in November, but that will be the last funding for that CD. The BRIC has been quite popular, I must say... I have 3 hours of Continuing Education on the docket this morning... This is my 3 broker licenses... Oh boy! Talk about brain death! OK... I've got to get this out the door... I hope everyone arrives to work dry, as it's a Thunderin' Thursday!

Chuck Butler
EverBank World Markets

Posted 09-24-2009 9:36 AM by Chuck Butler