Failure Was Always An Option.
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In This Issue.

* DSC failure gives life to the euro.

* Euro fails to take other currencies along.

* Gold rebounds this morning.

* Aussie bond yields fall.

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

Failure Was Always An Option.

Good day. And a Tom Terrific Tuesday to you! Well. the Debt Super Committee (DSC) did announce that they were throwing in the towel, (thus proving that failure WAS an option!) and calling off the fight, to come up with $1.2 Trillion in spending cuts. I told you all this would happen, for who in their right mind thought that a group of lawmakers from both sides of the aisle could agree?

So, now there is talk among the lawmakers that they will look for ways to soften the impact of what will now be automatic cuts to defense and domestic spending that total $1.2 Trillion, but don't begin until 2013. The President, has said that he plans to veto any plan to soften the blow. It's all political acting folks. First of all the cuts don't begin until 2013, which means after the national election, and. here's where the rubber meets the road on all this. the $1.2 Trillion is spread out over 10-years! So. a candidate could say that he made huge cuts in spending, and just leave out the over 10-years thing.

The news of the DSC failure, spread quickly yesterday, and it immediately began to reverse the flow of euros to dollars. The euro began to rally, and for once, didn't take the other currencies along for the rally. The single unit drove past 1.35, and then slipped, and then picked itself back up to rally past 1.35 again, this time for the rest of the day, and night.

Seeing this reversed flow caused some people in Angela Merkel's (Germany's chancellor) party to attempt to jawbone it back down, by reminding everyone that Germany has "no new bazooka" to fight the European sovereign debt crisis. Not that anyone could forget that Europe has a sovereign debt crisis for one minute, but I think that the guy (M. Meister) just thought he would throw that out there for good measure.

The reason the Eurozone leaders don't want to see the euro take off to the upside, right now, is that the Eurozone economy is teetering, and leaning toward recession, and they need manufacturing exports to pull them through. So. having the euro stay about where it is, or even a bit lower, doesn't bother the Eurozone leaders for that reason. I've said it quite a few times over the years, but bears repeating here.

The Eurozone leaders built the euro to compete with the U.S. dollar. However, they never realized that it would within a relatively short time, take off and be so popular. It replaced the yen, as an offset currency to the dollar, it quickly became the 2nd largest volume traded currency in the world, and its value VS the dollar was a moon shot. But. Eurozone manufacturers weren't happy that the euro was climbing steadily to heights not seen before. So. in the end, if the euro were to fall to 1.20 it would still be stronger than the dollar, but would make manufacturers jump up and click their heals together! And if the euro were to move to 1.40-1.45, the manufacturers would become Eeyores!

The ratings agencies threw yet another cat among the pigeons yesterday, when they announced that they would be reviewing France's AAA rating, and most likely put them on negative outlook. Just saying that deep sixed France's ability to borrow cheaply, and the yields on their bonds are rising. Oh brother! No wonder French President, Sarkozy, is hell-bent on getting the ECB to become more like the Fed Reserve. he's in trouble, and needs help fast!

Remember when I told you eventually Greece would probably leave the euro? I know that there has been a lot said since then that would leave you to believe that can't and won't happen. But, I'm still leaving the light on for that to happen. And they won't be alone either! In fact, I mentioned this a few months ago, but the more I think about it, the more I like it. A two tiered euro. Euro North, with Germany, Austria, Holland, Finland, Ireland, Belgium, and a couple of other small ones, and a Euro South, with France, Italy, Spain, Portugal, Greece, and a couple of other small ones. I used to call these countries "Club Med". and they could be called that again!

Oh well. time to move on, these are not the droids you're looking for.

So. like I said at the top. For once, the euro didn't take the other currencies along for the rally, it was strictly a dollar / euro trade yesterday. A couple of the really bad performing currencies couldn't be more different.. Aussie dollars (A$) and Indian rupees. The A$, saw a ton of selling all day long, as the risk assets were dropped like a bad habit. Gold had its feet held to the fire sale, and dropped huge chunks of value.

And the Indian rupee, which I fail to talk about very often, basically, because not much changes there to talk about. But the rupee yesterday got kicked in the gut, by traders and investors that see no way out for the currency that has soaring inflation, and little growth.. It's gotten so bad that the Reserve Bank of India (RBI) is contemplating whether or not to intervene and buy rupees to support the currency. This would be a reversal of what the Swiss, Japanese, and Brazilians are doing to their respective currencies.

But the depreciation of the rupee has come so strong and swift, that it has taken the RBI and investors by surprise. I would look for the RBI to intervene very quick-like, and try to catch the markets off guard. This could provide some needed, but short-term relief for the rupee.

And getting back to the A$ for a minute. Aussie bond yields are falling. yes falling, I know that's quite different than what's going on in Europe right now. Bond yields are falling in Australia because the bond market participants are pushing the envelope on more rate cuts by the Reserve Bank of Australia (RBA). And by doing so, the bond participants would book profits. And these falling bond yields are hurting the A$, for much of the A$'s allure, is tied to yield differential to the rest of the world.. Take that away, and the emperor has no clothes.

So. we'll have to watch this closely going forward.

Gold is mounting a rally this morning. The shiny metal lost so much ground yesterday that it could no longer hold the $1,700 figure and dropped below it quickly and decisively. Gold has pushed higher by $16 this morning, but is still below $1,700, at $1,694.

And after two years of hearing everyone that writes about the markets say that China's economy was going to collapse. and me saying that I doubted it would, but would "moderate" instead, we have the World Bank announcing that they see a "soft landing" for China with growth in excess of 8% next year. It was nice to see someone or some entity like the World Bank agree with me on this!

The growth in Asia in 2009 was one of the key reasons the global economy was able to recover, and now. as I've said a few times. Asia seems to be disconnected from the goings on in the Eurozone, and these countries have turned to promoting domestic demand to insulate them from the goings on in the rest of the world.. So. this will be a good test, to see if they CAN maintain economic growth while the Eurozone and the U.S. falter.

Did you see that a total of $1.2 Billion, not $600 million, may be missing from MF Global? A trustee made that announcement yesterday. This is all a scary thing folks, don't think that a commodities firm like MF Global can fail like this, and not cause ripples in the waters. In fact, I'm told that the CME, which would normally step in to secure accounts and find a buyer when a commodities firm failed, couldn't in the instance because they realize that more are to come! Now that's scary!

And, I come back to this kind of stuff all the time. Last year it was Madoff. and so on down the line, with scandal after scandal, and people wonder, why foreigners hesitate to invest here? Need I remind you of Enron, or the dozens of other Corporate scandals that have gone on in the past decade?

Data cupboard wise. did you see that Existing Home Sales surprised on the upside in October, yesterday? Existing Home Sales were up 1.4% in October partially reversing September's -3.2% drop. But. as with all things, what drove these Home sales? We all know the answer to that one. it's PRICE! And. a quick check of the prices on these Home Sales, shows that the national median sales price of existing homes fell -4.7% year-on-year in October. This marks the 11th consecutive decline. Distressed Sales accounted for 28% of the total sales.

So. like most data. on the outside it gives the impression that Existing Home Sales are improving, when in reality they remain under pressure, with price being the main stimulant to buying, and they continue to be weighed down heavily by supply, and the number of distressed homes on the market.

Today, we get the next revision of 3rd QTR GDP, and this afternoon we get to see the FOMC minutes. but other than that, no real meat to bite into for the markets.

In Canada, they will print their Retail Sales for October. (don't you wonder sometimes just why it takes so long to compile this data? ) And.. I expect a good healthy number here. I really want the data to continue to put pressure on the Bank of Canada to leave interest rates alone, and if anything raise them! A strong report here today, could lift the Canadian dollar / loonie higher on the day, given that the price of Oil has bounced back, thus giving the loonie two reasons to rally!

Then there was this. remember yesterday, when I told you that China's Premier, Wen Jiabao, told the U.S. President, that he would pledge to allow a greater flexibility to the renminbi? I also told you that this was nothing new for China, and once the visitation was over, they would revert back to their slow and steady appreciation for the renminbi? Well. here you go!

From Reuters. "Hu Xiaolian, vice governor of the People's Bank of China, said the country likely will continue with its "prudent" monetary policy but could tweak policy slightly by directing more credit to certain industries. Economists agreed. "Macroeconomic policies will be kept stable," said Guo Tianyong, an economist at Central University of Finance and Economics. "We cannot easily reverse the policy stance, as inflation remains relatively high. Fiscal policy can play a bigger role in adjusting economic structures and resolving the rich-poor income gap."

Chuck again. I'm sitting here slapping myself on the back for that one, HA! Not really. just thinking that if little old me (right, little?) can see this happening before it happens, why can't our leaders? For if they did, they would stop spending taxpayer money to go on boondoggles to the Far East, and come back with nothing!

To recap. The DSC failed to come up with spending cuts, and now it switches to automatic cuts that will take place over 10 years and begin in 2013. Chuck thinks that's all window dressing for the elections next year. But, the news of the failure, allowed the euro to rebound, but a strange thing happened in that the other currencies didn't follow the euro's rebound.

Currencies today 11/22/11. American Style: A$ .9855, kiwi .7490, C$ .9630, euro 1.3535, sterling 1.5655, Swiss $1.0955, . European Style: rand 8.33, krone 5.7730, SEK 6.79, forint 225.35, zloty 3.29, koruna 18.7940, RUB 30.98, yen 76.90, sing 1.2985, HKD 7.7905, INR 52.32, China 6.3620, pesos 13.95, BRL 1.80, Dollar index 78.01, Oil $98.39, 10-year 1.98%, Silver $31.51, and Gold. $1,698.70

That's it for today. Cold, gray steel, rainy, depressing days.. That's November here in the Midwest, and one of the reason's I could just as well, mark November off the calendar for good! Well, as long as the weather went with it! HA! I'm home this morning, as I have "Grandparents Day" at Delaney's school today. Man that makes me feel old saying that! But, I'll be back tomorrow, and Chris has been kind enough to offer to write on Friday, so I'm Golden! Welcome back to Jen, who has been in Florida visiting her mom (hi Rosemary!) for Thanksgiving. I'll have my usual Thanksgiving treat for you all tomorrow, and they tell me the sun will be coming back on Thanksgiving, so I'll be thankful for that! And with that. I'm on time, and I'll get this out the door that way! Now, let's go have a Tom Terrific Tuesday, no matter what mother nature throws at us today!

Chuck Butler


EverBank World Markets



Posted 11-22-2011 10:46 AM by Chuck Butler
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