Throwing A Cat Among The Pigeons.
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In This Issue.

* FOMC pushes rate hike out to late 2014!

* Big Ben discusses another round of QE.

* Currencies, metals, stocks and bonds all rally!

* An Attempt to confuse us with data.

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

Throwing A Cat Among The Pigeons.

Good day. And a Tub Thumpin' Thursday to you! I wonder what I'll talk about today.. Hmmmm. could it be.. The Fed Meeting? Oh, you are so smart! In case you missed this yesterday, because I'm sure the major media outlets couldn't muster up enough intestinal fortitude to do it, but the Fed threw a cat among the pigeons yesterday. There are a lot of things I'm thinking about this morning, so, this should be entertaining, for me at least! I sometimes feel like I write to entertain myself. But I do know differently! OK. in apology to Michael Stanley, Let's Get This Show On The Road!

OK. The Fed announced yesterday that they "expect short-term interest rates to stay close to zero at least through late 2014" So much for the previous statement that rates would remain at current levels through mid-2013. But, 2014? And late at that! That's just crazy folks. But, as I expressed here many times over the years. We're turning Japanese, yes, I really think so! Didn't the Japanese cut rates to zero, pass stimulus after stimulus, and keep rates near zero for over a decade? Yes, they did. And. haven't we done close to the same thing, with our zero rates running 6 years if they end in late 2014? Why, yes we have!

But, as I've always pointed out. the U.S. consumer is different than the Japanese consumer. The Japanese are savers. we are spenders. But. as I pointed out to a group of "big guys" last week. when someone thought deflation for that long a time was OK. and yes, it does keep prices down, but if you, me and the guy down the street that cuts the lawn with his shirt off, know that prices aren't going anywhere, and if that happens, no spending will occur, and that will shut down the economy, just like it has in Japan!

So. you should have seen the euro lead the currencies higher along with Gold & Silver when the Fed made that announcement yesterday. The overnight markets also decided that the Fed is going in the wrong direction, and to the woodshed.

The other thing that gives me reason to pound on my chest this morning, is that Bernanke said that he was laying the groundwork for a third round of large-scale asset purchases (told you they wouldn't call it Quantitative Easing) should unemployment remain higher than the Fed Reserve would like, while inflation falls below a newly-established target". he went on to say, "The FOMC recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation."

Currencies and Gold (&Silver) weren't the only beneficiaries of this statement. U.S. stocks rallied too.

So. once again, my confusion gets some clarity, for I had said originally that the next round of QE would come last fall, but the Fed decided that it wasn't time yet. So, then I said it would come about the time I get back from spring training. And it looks like I'll be bang on that.

Not that I want any accolades, this is bad stuff folks. this Quantitative Easing or QE. not bad for stocks, bonds, currencies, and metals. But bad for us, and U.S. citizens. One day, all the money supply that the first two rounds of QE generated ($2.4 Trillion) and the next round of "X", are going to be unleashed on the economy. and you want to talk about the velocity of money? This will be warp speed!

Now. onto other things. you know the baby steps of stabilization that I've talked about for the Eurozone lately? Well. what if I told you that it just so happens to have coincided with a HUGE increase in the money supply here in the U.S.? And what if I told you that $103 Billion seems to have been sent in swaps to the Eurozone? Well. I do believe that's what's happened. So, when it comes down to it, you & I are bailing out the Eurozone. And, I can't imagine that $103 Billion is going to be "it". More dollars will be printed, and shipped.

And, now I want to talk about something that I found on the BLS website the other day. read it first, and then I'll have comments.

Effective with the release of The Employment Situation for |

| January 2012 scheduled for February 3, 2012, population controls |

| that reflect the results of Census 2010 will be used in the |

| monthly household survey estimation process. Historical data |

| will not be revised to incorporate the new controls; consequently, |

| household survey data for January 2012 will not be directly |

| comparable with that for December 2011 or earlier periods. A |

| table showing the effects of the new controls on the major labor |

| force series will be included in the January 2012 release.

OK. clear as mud, right? Well. more confusion is in store for us, folks. From here on out, we won't have a previous reading to compare the data with. Reading my friend, Bill Bonner, in the Daily Reckoning ( yesterday, he addressed what's going on with data here in the U.S. Here's a snippet of Bill.

"The adjustment process "has been knocked out of whack by the financial crisis," Ellen Zentner, a senior US economist at Nomura in New York, said in a telephone interview. "The model ends up adjusting for a growth pattern that isn't there. The sudden drop-off in economic activity in late 2008 is not a pattern, it doesn't happen late every year. It was a one-off event."

In effect, the models are over-compensating...trying to make sense of the big collapse of '08-'09 by treating it as though it were a seasonal adjustment issue. If the winter weather were so severe as to cause such a big drop-off, the machines reason, we must move the bar lower next year. Then, even a modest improvement will look spectacular."

But Goldman's economists estimate that unemployment will average 8.5% this year - almost unchanged from last year. That is not a recovery."

Thanks Bill!

Now back to the Fed. O' brother where art thou? Remember all last year, the Fed kept saying that they expected stronger growth in the 4th QTR? I wonder where that thought went? Now "The Federal Reserve downgraded its outlook for economic growth this year". Really?

Remember what I said at the top of the year? I said that the year had already started with glowing forecasts for the economy in 2012, but by the time I headed to spring training, those glowing forecasts would be fading. Well, the Fed didn't even wait until pitchers and catchers report next month to begin downgrading those forecasts.

So. well, quite frankly, I'm worn out after all that thinking and typing! HA! I'll tell you a funny story. I stopped for a minute to sing along (and out loud) to the Scorpions' song Still Loving You. So, here I am singing out loud, and a guy from the building walks in, looking at me like I'm crazy! HA! And then he tried to talk to me. Hey! I'm singing a song here! HA!

OK. the Greek talks with private creditors resumed this morning, after being suspended yesterday. I can't believe an agreement hasn't been ironed out by now (recall I thought it would be done last weekend). Just show to go you, that when you have debt, you are not in a position to negotiate. I hope U.S. lawmakers are paying attention here, because if they don't, this is the same thing we'll be going through at some time in the future.

The Aussie dollar (A$) has pushed back above $1.06. I'm told by my charts friend that the next resistance level in A$'s isn't until $1.0760. So at $1.0675, where it is right now, it's still got room to run without resistance. The A$, even with the RBA doing their best imitation of Alan Greenspan, still enjoys a very strong positive interest rate differential and, with the Fed's latest announcement, that rate differential will remain for some time, eh?

But. more than the positive interest rate differential, what the Fed's announcement does is open the playing field for the low rate currencies around the world. Specifically, the Asian currencies. I've said for some time now that the Asian currencies were the place to be this year, and as long as we don't interest rates getting in the way of comparisons, the Asian currencies should be able to win a comparison to the dollar.

And, when the euro goes on a rally like yesterday and overnight, the currencies like Norway, and Sweden get to have moon shot rallies!

And then Gold. OMG! What a rally! And then push that further, with the rally that Silver had too! Gold & Silver are both up this morning too. not like yesterday when Gold added nearly $40,and Silver $1.20. But still up, good to see that profit taking, or price manipulators haven't entered the market. Speaking of the price manipulators. A reader asked me yesterday about the new commodities exchange that's starting in Asia is going to help Gold & Silver, and I said, as long as the price manipulators aren't allowed there, yes!

A friend of mine, (thanks Dennis) sent me a note from a guy that does numbers, and I found one of the items to play well with the Fed announcement yesterday. OK, let me set this up for you. The Fed announces that interest rates will remain near zero for more than two more years. It's more than inflation they want folks. Consider this:

The average interest rate paid on the $15.2 trillion of debt that the USA has outstanding is 2.826% as of 12/31/11. Every 1% increase in the average interest rate paid by the US government would add $152 billion of additional cost per year, equal to $4,820 of additional interest expense per second for the entire year (source: Treasury Department)

So. now you know, the rest of the story.

Then there was this. I feel like the whole letter today, was a Then There Was This! But here goes. I've quoted James Turk many times over the years. Mr. Turk is the foremost expert on the history of money and the role of gold in our economy. James thinks that hyper-inflation is coming down the road. This leads him to forecast an eventual price for gold of $8000 or more. He sees mining companies as a good option costs are down relative to revenues which can be realized (given the price of gold at $1600 and growing). A Bull Market on most mining stocks in 2012 will create great profit opportunities. Silver could likely outperform gold in 2012 as the historical silver/gold ratio is 16:1 and this ratio is currently out-of-line at its current ratio of 50:1. This ratio is likely to be closer to 30:1 by the end of 2012. Gold is money as it was chosen by the people some 5000 years ago as money.

Chuck again. yes. all good thoughts, and the hyper-inflation he's talking about is the warp speed velocity of money, when the (to be) 3 rounds of QE / money printing are unleashed on the economy. When that is. is the question of the day, but, when it hits, I don't think anyone will have time to react, which is why I truly believe you have inflation fighters, like Gold & Silver, in your portfolio now! That way, you won't have to be the guy that remembers he needs new tires before the winter snow begins, but keeps putting buying the tires off, and then one day he wakes up to a foot of snow on the ground. Now, he has to try to get to a tire store, with every other procrastinator that put off buying new tires, and now he'll have to pay whatever price the tire dealer chooses to charge him. Don't be that guy!

To recap. The FOMC meeting threw a cat among the pigeons yesterday, by not only announcing that the Fed Funds rate would remain near zero until late 2014, but also that more QE is coming should unemployment remain sticky. So, you might as well oil up the printing press, Ben, unemployment is going to remain sticky! The currencies, metals and stocks all rallied on the news, and have continued those rallies in the overnight markets.

Currencies today 1/26/12. American Style: A$ $1.0665, kiwi .8215, C$ .9985, euro 1.3145, sterling 1.5675, Swiss $1.0895, . European Style: rand 7.8230, krone 5.8280, SEK 6.7520, forint 223.65, zloty 3.2290, koruna 19.1460, RUB 30.29, yen 77.60, sing 1.2560, HKD 7.7570, INR 50.10, China 6.3138, pesos 12.88, BRL 1.7385, Dollar Index 79.29, Oil $100.22, 10-year 1.95% (the Fed saw this yield rising and said, "no mas"!) Silver $33.42 and Gold.. $1,716.05

That's it for today. Geez, I should have known better than to pound the drum for my beloved Missouri Tigers and their #2 basketball rating. I jinxed them. They lost last night. UGH! A Big Happy Birthday to my younger sister, Joan. Joan lives in Houston, so I only see her once in a while. Happy Birthday, Joanie! Little Braden Charles (I call him B.C.) was at the house when I got home yesterday. He's a happy guy, and just beginning to mock things you do. So of course I can get him to blow raspberries. Hey, that's what I'm there for! HA! And with that, I'll get this out the door. Thank you for reading the Pfennig, and I hope you have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 01-26-2012 11:25 AM by Chuck Butler
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