Do You Want To Be Part Of The Euro Or Not?
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In This Issue.

* Greek PM gets cabinet approval.

* Greek PM begins to sell the Grand Plan.

* Japan to pay severely for intervention.

* U.S. & Canada see manufacturing slip.

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

Do You Want To Be Part Of The Euro Or Not?

Good day. And a Wonderful Wednesday to you! I'm bailing on the trading desk today. Remember when I told you last week about too fast, can't last with the currencies? Well. I think that was me and coming back to the office. Nevertheless, I'm here to give you the latest news on the currencies, metals, economies, and Chuckisms!

So. a day after the Greek Prime Minister (PM) threw the euro and the Grand Plan under the bus, things have taken a different direction. First of all, we have the Greek cabinet unanimously approving the PM's plan to bring the Grand Plan to a referendum. And second, the PM, (like I asked for yesterday) began to explain the reasons the Greeks would vote "yes" for the Grand Plan, and that is something like. "If you want to continue to be a part of the euro, you'll vote yes".

Maybe, just maybe, the Greek PM will get his message across to the people. The euro has rebounded a bit, not much, but a bit on these two thoughts. Now, the Greek PM's plan to get Parliament approval begins, and will finish on Friday. And if that goes well, then the referendum to the Greek people will begin. These things will drag on, and will cause the euro to bounce back and forth. This is no time to make a decision to buy or sell the euro, in my opinion. There are just too many questions, and more that pop up with each passing day.

Well. today is the day the Fed's FOMC (Federal Open Market Committee) meeting begins and ends with a Big Ben Bernanke press conference. And as the meeting draws near, the more the questions from the markets about more Quantitative Easing (QE) begin to filter into pricing the dollar. You see, the Fed Heads have been giving hints about more QE, and when they do that, they get the markets all lathered up and lined up to sell dollars.

The staggering economy here in the U.S. would be the ailment that the Fed Heads would see the need to apply QE to. Usually, in today's strange market mentality, weak U.S. economic data would be a drain on risk, and cause risk aversion. But, when it comes to QE, the markets get it right, and sell dollars. because, for those of you new to class. QE is nothing more than printing money. And if we're going to print more dollars, on top of those we've already printed ($2.1 Trillion) in previous QE implementations, the dollar deserves to get sold!

So. I guess all eyes and ears will be on Big Ben Bernanke this afternoon, to see if he slips in a QE reference, or hint. Oh, and the FOMC will keep U.S. rates at near zero. no change there!

Yesterday, I told you how the Reserve Bank of Australia (RBA) did cut rates by 25 Basis Points (1/4%) Monday night. And how most of the bad stuff that would happen to a currency that saw a rate cut, had already been priced in, so the actual harm to the Aussie dollar (A$) was minimal. Well, when the U.S. traders came in, they sold the A$ some more, bringing the A$ below $1.03.

But. then cooler, calmer heads began to look at the Aussie economy and the prospects for further growth, and liked what they saw. They also saw that even with the 1/4% rate cut, that interest rates in Australia still maintain a nice spread or yield differential to other currencies, like dollars, yen, sterling and euros. I still don't agree with the rate cut, and see no reason for it. The RBA has allowed market pressure to influence their rate decision. and that's not right!

And I had a brief chuckle this morning, when I looked at the currencies and saw Japanese yen getting stronger again. I told you yesterday that the deposit records at the Bank of Japan (BOJ) indicated that nearly 8 Trillion yen had been sold by the BOJ in an attempt to reverse the yen's direction. Well. that worked for about 1 day. Yes, this morning, yen has slipped below the 78 figure briefly.

Look, I've said this so many times over the years, I feel like a broken record, or scratched CD, or damaged MP3. you get the picture. But here goes again. You can't change the long term direction of a currency with intervention. You can stem the currency's gains temporarily with intervention, but eventually, the markets have deeper pockets than any central bank, and if the markets want the currency to be stronger, they will eventually get what they want.

You would think that these Central Bank people would figure this all out. I mean, look at the losses that the Swiss National Bank (SNB) had to take last year? And the Swiss franc continues to push the envelope of strength. Well, the guys and gals over at JP Morgan issued a report saying that the BOJ faces a $510 Billion loss from their interventions. It just doesn't make sense to sell your own currency. Now, if you had a coordinated intervention, that might last a little longer, but is still not guaranteed to last very long.

The way I always look at these attempts to weaken a currency, is simply to use it as an opportunity to buy at cheaper levels.

Even in Brazil, where we've seen the Brazilian Gov't and Central Bank throw everything, including the kitchen sink at the real's strength, in an attempt to weaken the currency, eventually, the markets win. Just last week, the Brazilian Central Bank (BCB) cut rates 50 Basis Points (1/2%), bringing their rate cuts to 1% this year, but the currency continued to rally! Sure, this currency is the most volatile currency I've ever seen, so you have to look at it over a period of time. And even in Brazil. the central Bank is taking on losses for their attempt to weaken the currency.

OK.. enough intervention talk.. it's Wasted Time, as far as I'm concerned!

Yesterday, the data cupboard yielded the latest ISM Index (manufacturing ) here in the U.S. and remember yesterday morning, I said that the experts believe the index will indicate stronger manufacturing for October, and I said, that I was from Missouri, and I'll have to be shown that. And. the manufacturing index declined in October from Sept. the index printed at 50.8, down from September's 51.6, and the consensus forecast was for it to climb to 52.

Yes, manufacturing remains in the "expansion" side of the line at 50, that separates expansion and contraction. But the direction is scary, and this is what the Fed Heads will have in their minds when they meet today. Actually the Fed Heads' FOMC meeting this month was a 2-day meeting. But, on the first day, they get all the board games out, and then have to play clean up, clean up, everybody clean up, before they meet to discuss important stuff today.

North of the U.S. in Canada. they too saw their manufacturing index slide in October from September. Here the index went to 53.7 from 55 in September. So. this is one of the first pieces of data we've seen from Canada that is weaker. Manufacturing is still expanding, but at a slower pace. the report didn't move the Canadian dollar / loonie much, as the loonie continues to move along with the price of Oil, and if Risk is on.

Gold has rebounded about $21 this morning. after seeing the biggest monthly plunge since 2008, in October. I'm still of the belief that Gold has a bright shiny future, and that by the time the Fed implements QE3, the Eurozone deals with their problems, and any new problems in the world pop up, that Gold will trade back to its previous high by next spring. But then, that's just my opinion, and I could be wrong.

Then there was this. from the Economist. titled: America's student loans could be next bubble to pop.

"The Federal Reserve Bank of New York estimates that outstanding U.S. student-loan debt is at least $550 billion. "The size of the loan pool expands to enable students to pay ever higher fees to schools whose costs expand because money is coming their way," according to The Economist. "That was just about sustainable in the good times, a lot harder when there are fewer jobs to be had."

Chuck again. the bubbles never cease to pop up, eh? I still say that that the U.S. Treasury market is the biggest bubble we've ever seen, and when it pops. well. it won't be pretty.

To recap. It looks like the markets overreacted to the proposal by the Greek PM to put the Grand Plan to a referendum. But probably not. the currencies, led by the euro are stronger this morning, but most of that was probably just covering short positions. The Greek PM has begun to explain the Grand Plan to the Greek people. "do you want to be a part of the euro? ". Aussie dollars rebounded after the rate cut, when traders and investors realized that the Aussie economy is good, and they still enjoy a strong rate differential to the likes of the dollar, yen, euro, and sterling.

Currencies today 11/2/11. American Style: A$ $1.0350, kiwi .7925, C$ .09835, euro 1.3775, sterling 1.5995, Swiss $1.1315, . European Style: rand 7.9950, krone 5.6420, SEK 6.5990, forint 222.65, zloty 3.2030, koruna 18.2565, RUB 30.59, yen 78, sing 1.2750, HKD 7.77, INR 49.26, China 6.3560, pesos 13.53, BRL 1.7450, dollar index 77.01, Oil $92.42, 10-year 2.03%, Silver $33.58, and Gold. $1,727.40

That's it for today. I found myself kind of lost at first last night. No baseball, what was I to do without a baseball game to watch? HA! There's always reading and research to be done, so it's not like I sat there and twitted my thumbs! I continue to be moved by the very kind words that people have been sending me regarding the Cardinals. and regarding my health. Which should continue to get better, the further away from that last radiation treatment I get! Before you know it, we'll be getting ready for Thanksgiving. crazy the way time flies. I'm listening to The Beatles song, Getting Better, this morning, which plays well with what I was just talking about. and with that. let's go out and make this a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 11-02-2011 11:26 AM by Chuck Butler
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