Running Scared...
Daily Pfennig

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In This Issue..

* Markets think FOMC will do QE soon...

* Currencies rally along with Gold & Silver...

* Euro moves through 200-day moving avg.

* Time for the media to shift focus again?

And Now... Today's Pfennig!

Running Scared...

Good day... And a Wonderful Wednesday to you! The FOMC has opened Pandora's Box of currency rallies and dollar sell-offs, and I'm not talking range trade rallies. I'm talking all-out, no prisoners taken, rallies VS the dollar... Let's go to the tape!

So... The FOMC is worried... But not worried enough to implement Quantitative Easing (QE) RIGHT NOW. But they opened Pandora's Box of future QE, with a statement that went like this... "we are willing to ease monetary policy further to spur growth and support prices while refraining today from expanding its holdings of securities. The Committee will continue to monitor the economic outlook and financial developments and is prepared to PROVIDE ADDITIONAL ACCOMMODATION IF NEEDED to support the economic recovery and to return INFLATION OVER TIME to levels consistent with its mandate."

The markets took this simply as... "the FOMC might not have expanded their holdings of securities now... But they are prepared to do so... And if they are prepared to do so, they will!" So... It was as if the FOMC actually announced the implementation of additional QE!

You should have seen the currency screens light up... OMG! At first, the only currencies not rallying were Mexican pesos, Gold and Silver... But that didn't last long, and soon all currencies were taking liberties with the dollar. It's been some time since I last saw a move like this... Well, let's see... The last time I saw a move like this, was the last time the FOMC announced Quantitative Easing... March 2009...

On a sidebar, just to show you how dedicated I am, I was in Jupiter FL at Cardinals' Spring Training, when I heard the news... I got in my car, and drove to Del Rey Beach, to the Sovereign Society Home office, to inform my publisher, the lovely, Erika Nolan, that the dollar index had fallen through its 200-day moving avg, and that we should remove any dollar long ETF's that were present on the Currency Capitalist portfolio!

Ok... I know, I get a gold star... But what about now Chuck, you said yesterday that if they try to do it stealth like the dollar could see a bit of a rally... That was wrong, as the dollar was sold like funnel cakes at a state fair. I guess, their "stealth-like" wasn't so "stealth-like", eh? The markets took them as the Quantitative Easing Central Bankers that the are, and will punish the dollar for that now!

Yeah, that's the ticket... The markets took the FOMC non-move as a "move", which I said would be met with a huge currency rally... And it was!

And guess what else happened yesterday afternoon once the currency screens began to light up? The euro flew through its 200-day moving avg price of 1.3220... So, it's all ON this morning, as the Asians ambushed the dollar too, and then the European session has brought even more dollar selling, brining the euro to the doorstep of 1.34!

As I look out on the currency horizon, I see the "non-euro" currencies trading with a purpose this morning... The currencies from countries that have already widened their rate differential to the U.S. and are in line for more widening, are the currencies that have made the strongest moves VS the dollar (except the euro of course, which is the off-set currency to the dollar).

Aussie dollars (A$), kiwi, loonies, Krones, reals, these currencies already enjoy an interest rate differential to the dollar, and the markets believe, along with me, that interest rates in all of these currencies are going to go higher as we move into 2011...

The dollar? Well... The FOMC also said that interest rates would remain at "ultra lows" for an extended time... So... It makes sense for the currencies from countries that already enjoy a rate differentials to the dollar, rally stronger than other currencies, this morning!

And looky there! Gold is nearing $1,300, as it builds on a rally that has moved the shiny metal to $1,293 this morning... And don't forget Silver! Looky there! Silver is trading above $21 this morning! WOW!

So... I know, you think I'm just a hootin' and a hollerin' this morning because of the currency rally... But that would be wrong... Folks... I'm happy for the people that listened, battened down the hatches and maybe bought more currency on the dips, because this is what they hedged their portfolio for...

But... I think the FOMC is scared... And I think the Administration is scared... The markets are certainly scared... And I am too! I'm scared of what this is all leading to... I could go to the back of the dark closet right now and bring out Chuck's thoughts on where this is leading us, but that wouldn't do us any good... The thing that's more important is to make certain that you have protected your earnings, and accumulated wealth, for when those things come out of the back of the dark closet, you will see why I cried from the hill tops for years now about deficit spending...

I can hear some of you saying, Chuck, what does deficit spending have to do with the economic malaise we are in right now? Ahhh grasshopper... You know the song that goes, one thing leads to another? Well... With the Gov't all bottled up trying to deal with financing of the deficit spending, they took their eye off the economy ball... And when they realized what was happening, it was too late! That's the simplistic explanation, rather then going deep into the deficit spending debacle!

Well... 3 of the 4 members of the President's economic team have either left or are leaving soon, which leaves us with U.S. Treasury Sec. Geithner... Shoot Rudy, in my opinion, he should have been the first one to leave, 2 years ago! But, he's still here, and still walking around with the blinders on that he wore while he was President of the NY Fed, before the financial meltdown... He says that he believes in a strong dollar policy, but then turns around and bangs on China to allow their currency to strengthen VS the dollar... You can't have a strong dollar, and allow another currency to be strong at the same time, Timmy... It just doesn't work like that!

I guess where I was going with that at first, was not to center on Geithner, but to talk about the economic advisors leaving the Administration... I think its akin to David Walker, the former head of the General Accounting Office, who left his job because no one would listen to him, that the country couldn't keep deficit spending... He has written a book with his suggestions, and is going around the country now, trying to spread the gospel... Good Luck David... I hope you get your message across!

OK... We have a couple of items outside the U.S. to talk about today... First is the July Retail sales data for Canada, which I expect to be better than expected. Second, is a Norges Bank (Norway) meeting, which I expect nothing to come from... I do expect the Norges Bank to hike rates next month, but for now, I think they'll keep their powder dry...

Does this sound like a country whose economy is about to collapse?

China may increase its minimum wage by more than 20% annually over the next five years, to boost domestic consumption, according to the South China Morning Post, citing Huang Mengfu, vice-chairman of the National Council of Chinese People's Political Consultative Conference and chairman of the All-China Federation of Industry and Commerce.

Slowing down? Probably... Moderating?.. Probably... Collapsing?... Hardly!

OK... I'm seeing just a bit of slippage as I get ready to head to the Big Finish... I'm sure the NY traders are arriving at their desks, seeing these lofty levels and taking some profits this morning, don't you think?

Here's something that's on my mind about all this... It's about time for the media to focus on the European debt crisis again, don't you think? I mean, hasn't that been the arrows in the U.S.'s quiver, to keep the dollar from a complete collapse? I think so... I think that we'll see the media begin to bring the heat on the Eurozone GIIPS again, and you have to wonder why they shift like that... Hmmm could it be the Gov't directing them?

I think so... But, that's just Chuck and his conspiracy thoughts... Better leave him alone with those thoughts right now... HA!

Then there was this... Ok... This is another Conspiracy thought by Chuck, so if you've grown tired of this, skip ahead to the recap... This is from the Washington Post... Some of the nation's largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork - an admission that may open the door for homeowners across the country to challenge foreclosure proceedings. The legal predicament compelled Ally Financial, the nation's fourth-largest home lender, to halt evictions of homeowners in 23 states this week. Now it appears hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans.

Chuck again... Hmmm... Recall that I told you months ago that Ally Financial is owned by the Gov't... It's the old GMAC... So.. Isn't it strange to you that Ally is now so powerful overseeing foreclosures? And... Here's where Chuck dives in deep... Hasn't it been a project of the Gov't to stop foreclosures? Well, the Gov't owns the company that processes foreclosures... Hmmm...

To recap... The FOMC is worried, and running scared folks... They talked about the need for inflation, and that rates would remain at ultra lows for an extended time, and that they would step in to provide additional accommodation (read Quantitative Easing) should the economy need it. The markets took this as if the FOMC actually announced QE, and the rout on the dollar was on, remained on in Asian trading, and now European trading. The euro has traded through and closed higher than its 200-day moving avg, which is HUGE for the single unit, and the currencies with yield differential to the dollar are out performing the other non-euro currencies. Gold is above $1,290 and Silver above $21!!!

Currencies today 9/22/10... American Style: .9570, kiwi .7385, C$ .98, euro 1.3380, sterling 1.5660, Swiss 1.0110, ... European Style: rand 7.00, krone 5.9220, SEK 6.82, forint 208.65, zloty 2.9440, koruna 18.34, RUB 30.99, yen 84.60, sing 1.3255, HKD 7.76, INR 45.55, China 6.6910, pesos 12.69, BRL 1.71, dollar index 79.86, Oil $75.30, 10-year 2.54%, (Treasuries rallied, because if the FOMC is going to buy them, traders see a rally they want to be a part of), Silver $21.08, and Gold... $1,291.20

That's it for today... This last day of summer 2010! Yes, autumn begins tomorrow, and while autumn has the most consistent nice weather we get here in St. Louis, it also leads us to Winter... UGH! With every year that I age, the cold weather is worse for me... But, I can't let that get me down now! It's still summer! Well at least today it is! I'm sitting here bopping around while typing to the tunes of Al Green... Let's Stay Together... A classic! Remember last year, when my knee acted up and I received a shot in the knee? Well, the pain is back! UGH! I guess I need another shot! OK... It's that time... I hope your Wednesday is Wonderful, and be glad your diversified this morning!

Chuck Butler


EverBank World Markets



Posted 09-22-2010 9:35 AM by Chuck Butler