Increasing The Ante.
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In This Issue.

* France & Germany agree to increase in EFSF

* Spain gets downgraded by two notches!

* Norges Bank meets today.

* CFTC votes 3-2 to limit commodity positions.

And, Now, Today's Pfennig For Your Thoughts!

Increasing The Ante.

Good day. And a Wonderful Wednesday to you! We're having technical difficulties right out of the starter blocks this morning, so, it's questionable at this point, whether this will go out on time. It is what it is though, there's nothing I can do about it, So. I'll write. The problem is that our currency screens keeping going off. So. I'm flying a little blind right now, hopefully as I write, they come on for good.

Front and Center this morning. Spain may have seen a 2 notch credit rating drop yesterday, but it didn't matter, as it was announced that France & Germany were ready to agree to a 2 Trillion euro rescue fund. Now they're talking about a rescue fund, and not just the 500 Billion euros they had previously agreed to. And the markets went hog-wild over this announcement. The dollar rally was quickly reversed and the euro was on its way to 1.39, where it sat this morning until a few minutes ago. The Eurozone leaders, thus raised the ante. who's going to call?

Yes, I was able to find a currency level or two on my I-Phone. As my dad used to always tell me. Chuck, there's more than one way to skin a cat. For cat lovers out there, he wasn't really skinning cats. no animals were hurt! OK. enough of that, let's go see what else has happened overnight.

So. at one point yesterday, things were looking pretty bleak, and even Gold was down $40. But that turned around after the Eurozone announcement. I had a guy leave me a message yesterday, asking me the $69,000 question which was. "If yesterday morning was all about risk aversion, then why was Gold getting sold?" Well. this plays into what I've been talking about for the past 3 years, and that the markets aren't trading on fundamentals. Take the Retail Sales numbers last week (I've got some debunking for you in the Then There Was This portion of the letter today). At first glance, they looked strong, which fundamentally would mean the dollar would be a buy. but instead it was a sell.

My two older kids used to watch a kids show, where it was "opposites day". The trading since the financial meltdown reminds of that! Yes. when things look bleak, investors should be running, no sprinting to Gold. And the Mom & Pop investors are. the demand for Gold & Silver for that matter, remains very strong. It's the institutional buying and selling that muddies everything up, folks. Those darn institutions!

And the "afterhours trading". Well. the CFTC met yesterday, and voted 3-2 to enact position limits on 28 Commodities, including Gold & Silver. I'm sure that this announcement had a lot to do with the reversal in Gold & Silver yesterday. However, just because there's a new rule for the Bullion Banks to follow, who's to say that they actually follow it? Sort of like in Greece, where the austerity measures weren't being followed, until the Eurozone told them to shape up or there would be no bailout payment. Now, a team of auditors go into Greece every 3 months and review the austerity measures.

Don't know what carrot can be dangled in front of the institutions with large short positions to close them out or else. but, I sure hope one can be found. for if one is. think about the confident feeling moms & pops can have when they want to buy a commodity, knowing what the fundamentals are, would finally play into the commodities value, and not speculative shorting.

I just looked up at the Bloomberg TV, and there's a guy being interviewed, who says the "euro should have never been created" and that "it will remain in crisis mode from here on". Hmmm. Now, if I were the one doing the interview, I would ask him this. If the euro is so bad. Why is it still 1/3 of a cent stronger than the dollar? That's because we're in crisis mode, and have been since 2002. And it's not going to go away any time soon!

I had to laugh at my friends over at the 5 Minute Forecast yesterday, for they said something that was right out of Chuck's book of sarcasm. They said, "Somebody failed to inform the U.S. Wholesalers that we're supposed to be experiencing another bout of deflation right now." The reason they said that? Well. PPI, (the producer price index, that tracks wholesale inflation) rose .8% in September, moving the year over year wholesale inflation at 6.9%...

The Norges Bank (Norway's Central Bank) is meeting as I type away with my fat fingers. Hey, on a sidebar. I was in Panama last spring, and sitting in the lobby of the hotel waiting for my shuttle to the airport to get the heck out of Dodge, and go home. when a guy, apparently a Pfennig reader, came up to me and said, "OK let me see those fat fingers". I laughed, showed him, and he agreed that they were fat fingers!

OK. back to the Norges Bank. I don't see them doing anything here today.. It's a an interesting meeting though, because they could give indications as to what they see in the future for the Norwegian economy. At their last meeting they mentioned that the krone strength was doing the work for them to combat inflation, and therefore no rate increase was needed. It will be interesting to see if the Norges Bank mentions krone strength again, because all-in-all, the krone is weaker now VS then.

And on the day after the Japanese Gov't increased their intervention fund, thus signaling to the markets that they are about to attempt to weaken the yen. Mr. Yen, former Japanese Finance Minister, Eisuke Sakakibara told a crowd at a Bloomberg conference in Tokyo that "I'm not worried about Japanese debt for about 5 or 6 years, and that the yen may gain VS the euro and dollar, because plans to intervene will only work if coordinated with other nations."

Lions and Tigers and Bears oh my! Did you see where a guy that owned a private zoo, was found dead, and the lions, tigers and bears had escaped? This happened in Ohio, which allows me to breathe easier, knowing that I wasn't going to encounter a tiger this afternoon!

Well. I don't like doing this. but I just talked to our tech people, and they can't tell me when I'll have service again to the outside world, other than email. So. I'll cut the Pfennig off, short-n-sweet this morning and pick it back up tomorrow. But first, I've got this killer look under the hood of the Retail Sales figures that printed last week.

Then there was this. first let's review the report. The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $395.5 billion, an increase of 1.1 percent (±0.5%) from the previous month and 7.9 percent (±0.7%) above September 2010.

Price changes is = to inflation. and is not counted in the numbers. But Seasonal adjustments are. Do you see where I'm going here?

A quick check on the components tells us that none of them were actually up!

motor vehicle sales, Electronics, building materials, food & beverages, health, gasoline, clothing, sporting goods, general merchandise, and so on. were all down!

That leaves us retail sales at bars. I mean, come on, drinking must be up given the problems in the world today. No.

"The truth? The entire gain was "seasonal adjustment." All of it. In other words, in actual dollars there was not only no increase there was a net decrease in sales of approximately five percent - not annualized either, month-over-month!" - market Trader.

Chuck again. I knew there was something fishy about that number last week. OK. if I were the Mogambo Guru, he would say "ok junior Mogambo Guru rangers go out and get the media to talk about this".

To recap. the dollar rally was reversed yesterday afternoon, after it was announced that France & Germany would agree to a 2 Trillion euro rescue fund. This took some heavy weight off of the euro, and allowed the Big Dog to rally, all the way to 1.39 where it sits this morning, or the best I can tell any way! The CFTC voted 3-2 to limit commodity positions, which includes the large short positions in Gold & Silver that the bullion banks hold. And the supposedly strong Retail Sales figures from last week, were a farce!

Currencies today 10/19/11. American Style: A$ 1.0310, kiwi .7980, C$ .99, euro 1.3820, sterling 1.58, Swiss $1.1120, . European Style: rand 7.9755, krone 5.59, SEK 6.6025, forint 213.75, zloty 3.1380, koruna 17.9795, RUB 31, yen 76.75, sing 1.2615, HKD 7.7760, INR 49.14, China 6.3780, pesos 13.35, BRL 1.7565, dollar index 76.70, Oil $88.69, 10-year 2.19%, Silver $31.73, and Gold. $1,658.85

That's it for today. Well.. The weather people told us the rain would be out of here yesterday, but guess what? It's still here! And tonight is Game 1 of the World Series! The Butler family, my beautiful bride, me, Dawn, Andrew & Alex are going. sure hope the rain stops! It's going to be a cold one either way. I don't have any tickets for tomorrow's game, in case someone wants to make sure I can go! HA! I got a late start on today, took the long way to work (long story), stopped to get gas, and then came in to find out that I have no internet, or Bloomberg service. Oh well, it is what it is. It's not going to get me down, I'm going to the Worlds Series tonight! Like I said at the top, I don't know when you'll get this. but, when you do, I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 10-19-2011 12:57 PM by Chuck Butler