RBA Hikes Rates Again!
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In This Issue..

* Global Growth gets supporting data!                           
* Non-dollar currencies rally...                                
* Gold heads toward $1,200!                                     
* Canada exits their recession...                                                                                             

And Now... Today's Pfennig!

RBA Hikes Rates Again!                                  

Good day... And a Terrific Tuesday to you! And... Welcome to December! It's a grand month in my book, even if it does get quite cold! In fact, after reaching 60 degrees today, they say we'll get our first snow tomorrow night! So... Long time readers know all too well, that I'll begin whining about it being cold, and how I've got to go where it's warm... There will be no change from that this year, so be prepared!

Well... It's a full-on, Risk On day this morning... Front and center, The Reserve Bank of Australia (RBA) did indeed raise interest rates last night (their Dec. 1st!), India's economy posted a strong 3rd QTR, and China posted a strong manufacturing number... And! The Dubai thing is waning... But, I want to talk to you about something that I wrote in the Pfennig about a week ago... So, we've got a lot on our plates to go through today, so let's get started!

The non-dollar currencies really got a lift overnight as the Reserve Bank of Australia (RBA) did as I said they would, and lifted rates higher by 25 BPS (1/4%)... This now brings the interest rate differential to the U.S., Japan, Canada, and any other county that nilly, willy, cut rates to the bone, to... 350 BPS! That's a full 3 1/2% for those of you at home keeping score!

The following rate announcement, statement, didn't give any one a warm and fuzzy about further rate hikes as we head into 2010... But I think that's prudent... The RBA has hiked rates 75 BPS in the past 3 months, time now to sit back and see what happens... I also want to crow a bit, as I was all over this rate hike like a cheap suit, saying that the RBA would not want to wait until their next meeting which doesn't take place until February!

As I've said for many years now... Australia is the proxy, if you will, for global growth... And if the RBA thinks that interest rates need to move higher, then they see growth, and do not want to have to deal with inflation pressures later! The Aussie dollar (A$) took this news and moved above 92-cents...

The proof of global growth comes to us from Asia, but from two different 800 lob gorillas of economies! First, India... Asia's third-biggest economy grew at the fastest pace in six quarters, for the 3rd QTR... This GDP print probably will motivate the Indian Central Bank to increasing interest rates later this month. It looks like the annualized economic growth in India will reach 6% this year! WOW! No wonder they bought the IMF's Gold, and are in talks to buy the rest of the IMF's Gold! The Indian Central Bank sees this growth... And sees the inflation that will come right behind the growth, and instead of owning dollars, they are opting for Gold!  Doesn't that tell you something about your own personal investment portfolio?

More proof of global growth comes to us this morning from China! China's manufacturing grew at the fastest pace in 5-years in November... This marks the ninth consecutive month of manufacturing growth in China... The PMI Index (manufacturing, just like here in the U.S.) stands now at 55.2... And just like here in the U.S. with our ISM Index, anything above 50 represents expansion of the manufacturing sector.

Now... We've been through this before, where I tell you that a customer that used to have a business in China, explained to me that you can only believe 1/2 of what China says happened in their economy... So... Even taking that into consideration, their Manufacturing sector would remain on the expansion side of the ledger.

And finally... Canada posted a .4% gain in their 3rd QTR GDP, and thus exited their recession, just like I said they would do... The Canadian consumer is driving this economic expansion, which makes sense, given that Canada didn't have the rot on the banking vine like in the U.S. and didn't experience the depths of the mortgage meltdown like in the U.S. Now... All the loonie needs to boost it back to parity to the U.S. dollar is for Oil to get on its horse! But, you, me, and the guy down the street cutting his grass with no shirt on, showing his muscles so all the ladies can ooh, and Ahhh, as they drive by, don't want to see Oil get on its horse! But... We can't continue to leave our fingers in the dams holding Oil back...

In the Eurozone this morning, their jobless rate remained steady at 9.8%, which is a good sign for them...

The Bank of Japan (BOJ) is back at the drawing board once again, trying to prop up the Japanese economy... They've been on this ride since the early 90's... You would think that they would get the picture, sooner or later, and get out of this business of meddling in the economy... Instead they decide to keep rates at near zero... And to undertake new steps aimed at easing monetary policy, including the provision of a new 10 Trillion yen ($116.07 Billion) lending facility.

Japan's central bank made the decision after an unscheduled meeting Tuesday, following intense pressure during recent weeks from the government of Prime Minister Yukio Hatoyama to make extra efforts to buttress the increasingly fragile economy.

Hmmm... How familiar does all that sound to you?

OK... Let's get back to something I talked about a week ago, that I didn't get many "contra-emails" from... Here's what I said on Tuesday Nov. 24th... "I got a great note from a reader yesterday that said... "With all the emails you get wondering about the Euro collapsing because of Italy, Spain, etc...why don't you just tell them that "if you think that's the case then the dollar will collapse because of CA, NY, IL all running huge deficits"? In addition to the national deficits?"

California is the 8th largest GDP in the world... And traders got all scared when Dubai announced they couldn't meet their loan obligations? Dubai isn't anywhere close to the size and debt problems as California! But, why doesn't the financial media talk about this? We saw Gold drop $25 in one day on the Dubai news. We saw the non-dollar currencies get taken to the woodshed on the Dubai news... But where's the taking of the dollar to the woodshed on the California problems? Last time I checked they were part of the Union, right?

OK... So... That was something that was brought to my attention by a reader yesterday, he said that I had touched on it last week, but didn't really stress the comparison... Well, I hope I did now!

Well... Hold on to your hats this morning, for Gold has added $14 to its price, to now price at $1,194! I'm reading a story while typing... Betcha didn't think I was that talented, eh? Anyway... The story on the Bloomie talks about how Gold futures reached $1,200 overnight... For those of you new to class, Gold futures, and spot Gold are two different creatures... When you buy physical Gold, or even an ETF, you use spot Gold... And that's the price I use when I quote Gold... Gold futures are just what they say they are, and have nothing to do with spot Gold... However, one can usually get a good feel of where Gold is headed, by following the Gold futures price!

Yesterday, I told you about Gold being a safe haven from the nut cakes running around the world... Well... This past weekend, Iran announced that they had 10 new locations for uranium enrichment... So, that's just great... Iran is expanding their nuclear capabilities... And people are still not buying Gold? Hmmm...

Did you see the story that in a survey of money managers by Goldman Sachs came back with an average expectation that Gold will reach $4,000 in this cycle. YIKES! Now, I'm a Gold holder, and while $4,000 Gold would look mighty fine in my investment portfolio... I wouldn't want to see what the economy looked like here in the U.S., for sure! In fact, I cringe at what it would look like if Gold went to $2,000!!! So... Let's just hold to our convictions that Gold is a store of wealth, and value, it has never gone to zero, and... It's an insurance policy, that you have to hope you never, ever have to use!

So... All-in-all, we've got the non-dollar currencies (except yen) rallying this morning, along with the precious metals and commodities... The Japanese yen, which normally has the best of both worlds, as it gets to rally when the dollar rallies, and when the dollar gets sold, was thrown overboard, by the news that the BOJ was holding that "special meeting" to announce more Gov't intervention in the economy...

Then there was this... Last week, I mentioned that Russian officials were hinting that they were interested in buying Canadian dollars / loonies, converting their U.S. dollars doing so... Well, there was further developments to this story... Russian Central Bank Deputy Chairman Ulyukayev referred to the loonie, saying "We are discussing adding loonies to reserves. It will be in several months' time. Its share will be insignificant."

Traders have yet to take this information in, and trade accordingly... But maybe they're not aware that an "insignificant share" of Russia's $444 Billion gold and FX reserves could be fairly significant for loonies.... This is all Central Bank parlance to throw traders off the scent of a significant purchase of loonies by Russia... Sooner or later, love is gonna getcha! No wait, sooner or later, traders will get the memo...

To recap... Global growth is in swing, as witnessed in India, China, Canada, and Australia overnight. The RBA hiked rates 25 BPS, and the non-dollar currencies are on the rally train this morning, except Japanese yen. The Bank of Japan deep sixed yen, with more Gov't intervention in the economy. They've been doing this since the 90's, when will they ever learn? When will they ev-er learn? And Gold is sneaking up on $1,200!

Currencies today 12/1/09: American Style: A$ .9225, kiwi .7275, C$ .9560, euro 1.5070, sterling 1.6575, Swiss .9990,  European Style: rand 7.3545, krone 5.6415, SEK 6.91, forint 180.30, zloty 2.7365, koruna 17.2440, RUB 29.13, yen 86.90, sing 1.3810, HKD 7.75, INR 46.31, China 6.8261, pesos 12.88, BRL 1.7385, dollar index 74.53, Oil $78.27, 10-year 3.23%, Silver $18.80, and Gold... $1,195.50

That's it for today... I wanted to give you a couple of "nice emails" that "touched" me this past week. The Good Lord knows that I receive thousands more "nice emails" than "nasty ones", and since I complain sometimes about the "nasty ones", I thought I would share a couple of "nice ones"...


And this one from Paul "Happy Thanksgiving:
You know what I'm thankful for this Thanksgiving? YOU, that's right, I'm thanking God for someone with the intestinal fortitude to tell it like it is, and you fill the bill perfectly. And by the way, please disregard those dolts that complain about your writing style.
I love it. You make my day!"

Ok... I won't bore you with any more of these for now, but every once in a while I'm going to print the ones that "hit me" and make me want to write every day!

And... Little Delaney Grace came downstairs yesterday, where I was dozing in my recliner with my leg up, and said, "Boo", waking me up, and she giggled so hard, she went to the floor giggling... How could you get angry at that?   Time to go! I hope your Tuesday is Terrific!

Chuck Butler
EverBank World Markets

Posted 12-01-2009 9:25 AM by Chuck Butler