The Risk Of Disappointment.
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In This Issue.

* Euro rebounds yesterday & continues this morning.

* Bank of Canada to meet today.

* RBI sends rate hike signals!

* Closing in on November.

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

The Risk Of Disappointment.

Good day. And a Tom Terrific Tuesday to you! Well, I was exaggerating yesterday when I told you that I looked like (*&% . I arrived at the hospital for my radiation treatment, the nurse took one look at me and told me she could not give me a treatment with me looking like that. "Your mouth looks awful" was her line that she repeated about 4 times. the mouth and swelling is no better this morning, but I'm sure it's much better than it would have been if I had gone through another treatment yesterday!

Things don't look good for my beloved Cardinals, as they head home from Texas down 3-2 in the best of seven World Series. Sorry to bore you with this, but this reminds me of 1982, the Cardinals came home from Milwaukee down 3-2, and then won the next two to win the Series. Game 6 in 1982, was much like it will probably be here tomorrow for Game 6. cold and rainy. A young pitcher named John Stupor kept coming out after rain delays to pitch the game of his life. and saved the Cardinals for Game 7.

My mom always thought I would be a sportscaster/ announcer. Don't know why I just said that, I guess because I carried on about baseball. Any way. the Currencies are stronger against the dollar this morning, and this time all three anti-dollar currencies, Gold, euro, renminbi are gaining VS the dollar at the same time! We haven't seen this in a while. But it could very well be short-lived because disappointment hangs over the Eurozone like the Sword of Damocles. It's real simple to figure out, folks. the euro is stronger this morning because no one wants to be short ahead of tomorrow's day of reckoning for the Eurozone. For. what IF Eurozone leaders do surprise the markets with a good plan? IF that were to happen the euro would soar, so.. being "forward looking investors", traders and institutions are buying euros ahead of the fact.

However, I'm not a believer of buying the rumor and selling the fact as a good way to trade. And I'm certainly not a believer of the thought that the Eurozone leaders will surprise the markets tomorrow with a good plan to deal with their debt problems. So.. the risk of disappointment hangs over the euro..

Yesterday, the euro rose to 1.3957, and is near that level this morning at 1.3940 as I write. I guess you could make the point that Eurozone leaders are doing just enough to keep the markets happy, well at those that are optimists!

As I look at the screens that I now have set up here at home, I see that the Canadian dollar /loonie is nearing parity again. Recently, we've seen the loonie move higher against the U.S. dollar in a stealth-like manner.. But this move closer to parity (.9945 as I write this morning), is curious. Yes, the price of Oil continues to gain. but this is more than that. And again, I think it's the markets wanting to be long as asset before an event. "just in case".. The event I'm talking about today is the Bank of Canada (BOC) meeting today to discuss rates.

Remember that ledger that we were keeping of the Canadian data prints, so we could see if it made sense to cut or raise rates at this meeting? Well, my ledger shows almost double the data prints on the "pro rate hike" side. But will that be enough for the BOC to hike rates? Unfortunately, I don't think so. the BOC will have more excuses than you can count as to why they didn't hike rates today, but the main one will be that the fear the Eurozone problems will spread or something like that. So.. the risk of disappointment is also hanging over the loonie this morning.

I told you at the beginning that euros, renminbi and Gold were all stronger this morning. And besides the goings on in each country and the price manipulators, the risk assets could very well be getting pumped up by all the talk from Fed Heads about the need for QE3 (the 3rd round of Quantitative Easing) . Last week we had Bullard, Rosengren, Tarullo, and Yellen all throwing their hats in the QE3 ring.. Those comments were followed up by Fed Head Dudley (one of the few that calls it like he sees it, and is not swayed by Big Ben Bernanke) said, "it's possible that we could do another round of quantitative easing."

Look. it's not as if they are saying that it's a done deal.. but. why talk about it at all if it's not a possibility? Always, always I tell you Tutor Turtle that Where there's smoke, there's fire. And the Fed heads are creating a lot of smoke.

The Chinese Gov't allowed the renminbi to gain at a very strong pace last night. In fact, the renminbi now sits at a post dropping of the peg, high against the dollar! And for all of you who think that China is to blame for our problems, and that they have manipulated their currency to their advantage, I say. Hey! Wouldn't you do that too? But, I think it's more of a conscience effort on their part to match to the currency moves with the economy. For instance, yesterday I told you how the Chinese manufacturing Index rebounded back above 50. and following that report, the Gov't allowed the maximum move higher for the currency... As I've said all along.. The Chinese will do what's best for their economy. and will not allow outside pressure to move faster, enter into their process.

And then Gold. yesterday, I mentioned something about the Wikileaks cable that pointed out Gov't interference in the Gold price, and I had a lot of readers ask me what day I talked about that. Hmmm, apparently missed class that day. hey, I'm just kidding. I don't expect people to read the Pfennig religiously every day. So. I dialed up the time machine, and there it was. On September 9th. In fact, here's the paragraph from the Pfennig on 9/9/2011.

"I'm currently reading a report from Wikileaks about the gold manipulation. And here's the now-exposed cable that will soon be read worldwide. The leaked State Department US embassy cable - 09BEIJING1134, can be read at the Wiki-leaks site. I don't think I can say much more about this except to say that in the cable, it is acknowledged that China is buying and hoarding gold as a way to lessen the value of the dollar."

I also had someone write me yesterday and tell me that my daily Pfennig has become waaaayyy too long! Hmmm. I was thinking that the other day. I remember when two pages were the norm. then it became 3 pages, and then 4, and now it's consistently a 5 page letter every day, with some days going to 6 pages! I'm working waaaayyy too hard on this! HA! But there's just so much to talk about these days.

OK. back to the letter that's waaaayyy too long.

I don't know if anyone has noticed or not, but the Indian rupee has slowly moved weaker and weaker VS the dollar. I think investors grew tired of waiting for the Indian Central Bank to move against the inflation problems in India. Well. maybe the Reserve Bank of India (RBI) finally "gets it". Here's what they had to say in a communiqué yesterday. "The rupee's weakness has emerged as a new source of price pressure and the challenge to tame inflation remains significant." Which indicates to me that the RBI is signaling the need for higher interest rates. So. with inflation at 9%, the RBI has plenty of rate hikes it needs to make. And, in my opinion, once the rate hike cycle begins earnestly, investor flow to rupees will pick up, and too will the value of the rupee. But, as with all my opinions, they could be wrong.

Then there was this. Well folks. we're almost to November, and then before we know it, we'll be making plans for Thanksgiving. Well, guess what has a deadline of Thanksgiving? In case you forgot. The Congressional Super Committee has until Thanksgiving to identify $1.2 Trillion in deficit savings. Who among us believe that's going to happen? Now. I could be wrong about this, but somewhere I read that if the Super Committee fails at their task, then the deal that was forged in August is that $1.2 Trillion in automatic cuts will be set in motion against discretionary spending. Uh-Oh!

And if the automatic cuts somehow get deep sixed, I think the ratings agencies will come after the U.S. again. this time with Moodys and Fitch joining S&P who already cut the U.S credit rating. If that happens, you can bet a shiny quarter that QE3 won't be far behind.

To recap. The euro leads the anti-dollar currencies higher this morning, following up yesterday's rise, as investors want to hold euros ahead of the Eurozone meeting that is supposed to reveal their latest plan tomorrow, "just in case" the Eurozone leaders surprise the markets with a good plan. The risk of disappointment hangs over the euro. and the Canadian dollar / loonie, as well, as traders are pushing the loonie closer to parity on the hopes that the BOC hikes rates today. And Gold joins the party moving higher this morning.

Currencies today 10/25/11. American Style: A$ $1.0490, kiwi .8035, C$ 1.00 (just hit parity!), euro 1.3945, sterling 1.6015, Swiss $1.1375, .. European Style: rand 7.87, krone 5.5130, SEK 6.5350, forint 212.75, zloty 3.13, koruna 17.8335, RUB 30.42, yen 76.15, sing 1.2610, HKD 7.7765, INR 49.54, China 6.3604, pesos 13.30, BRL 1.7435, dollar index 76.01, Oil $93.70 (huge jump higher!), 10-year 2.25%, Silver $31.97, and Gold. $1,653.35

That's it for today. I have to step away to make Alex Breakfast. be back in 20 minutes. OK. I'm back now! Tough loss last night for the Cardinals who had so many chances to blow the game open, but couldn't buy a hit with runners on base. But we still have life, and the next two (if needed) are at home! Cold & rainy Busch Stadium. Once again, I want to thank each and every reader that sent along good wishes, prayers and thoughts to me. You are all so kind. Some make my eye moist. Ok. Monday Night Football was at EverBank Field, In Jacksonville last night. I think about that a lot when I see that field with EverBank on it.. to think about our humble beginnings. We've come a long way in such a short period of time in the whole scheme of things. Ok. I think I talked about everything I wanted to today. When I'm home I have tons of reading time, and time to think about what I want to write about the next day. Maybe there's something to that.? Oh well.. time to get this out the door. I hope you have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 10-25-2011 10:54 AM by Chuck Butler