The FOMC Minutes Send The Dollar Down The Slippery Slope!
Daily Pfennig

Blog Subscription Form

  • Email Notifications
    Go

Archives

In This Issue.

* Euros, Oil and Gold are move higher VS dollars.

* Following Japan down the accommodation road.

* CBO says the fiscal cliff will cause a deep recession!

* Chuck sings Smokey Robinson.

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

The FOMC Minutes Send The Dollar Down The Slippery Slope!

Good day. And a Tub Thumpin' Thursday to you! Well. if the playoffs started today, the defending World Champion Cardinals would be IN them! But there are 39 games in the regular season to go, so there's still a lot of baseball to be played. But like I said the other day, they need to go on a long winning streak, including their 3-game trip to Cincinnati this weekend.

The euro, Gold, and Oil have all been on a winning streak this week, that the Cardinals would envy. And brother did these three get a boost yesterday, when the Federal Reserve's FOMC meeting minutes were made public. in simple terms, not speaking Central Bank parlance, The Federal Reserve sent another strong signal that it is preparing new steps to boost the recovery, saying that stimulus would be needed "fairly soon" unless the economy shows substantially stronger growth. The minutes of the July 31-Aug. 1 meeting showed many members felt further support would be needed "fairly soon" unless the economy improved significantly.

So. what will kind of "accommodation" will it be? They certainly can't be thinking that more Twist and Shout or Operation Twist will work, could they? Well, of course they could. They are the Fed Heads. Remember the story I told you about the "guy" that says he sat in on a dinner with lawmakers and Big Ben Bernanke, and Big Ben was told to never even say the words "Quantitative Easing" again? Hey! If you're going to do this stimulation of the economy, why not call it what it is? With every Central Bank accommodation action, we go further down the road that Japan has already traveled. and it's a real shame, folks. Yes, I know, they mean well, they truly believe that this is what the economy needs...

Fed Head, Charles Evans, president of the Chicago Fed, said, "I don't need to see any more data to know that I think we should have more accommodation. I would certainly applaud anybody who takes action in order to strengthen their economies around the world, including China." Now, that was interesting dragging China into the conversation on Fed accommodation, don't you think? Personally, I think Mr. Evans is attempting to coax China into some sort of stimulus, so the Fed Heads can point to China and say, "if it's good for China, it's good for us".

So. I'll get back to China in a minute. but first, let's dive into the upward moves of euros, Gold and Oil. I really get uncomfortable about the upward moves when all that's backing the moves are some statements that were made 3-weeks ago. But that's the markets, always "looking forward" and trading today for those forward thoughts, which means the downside risk is even greater, should the Fed drag this accommodation out, not wanting to look political.

Why in the world would the euro be on the rally tracks, when the Eurozone's manufacturing Index remained below 50 for the 7th straight month? The index did rise in July from June's low of 46.5 to 46.6, but the gain was a micro-gain, at best. At least it didn't fall further! Well, the euro is the offset currency to the dollar, and I've explained this many times in the past, so if you don't want to go through it again, skip to the next paragraph. OK, those that want to stay. by nature of being the offset currency to the dollar, it matters not what the Eurozone economy is doing, if the dollar is getting sold, the euro will go up in value.

Gold has really gathered some wind for its sails this week, and a huge breeze filled the main sail for Gold yesterday with the FOMC meeting minutes. Gold moved to a 16-week high, yesterday, and is continuing to move higher this morning. The real important move for Gold has been to climb above its 200-day moving average. If you get the physical demand for Gold in concert with the technical traders, we could very easily see Gold push toward $1,700. But that 's just my opinion, and I could be wrong. and like I said above, this could all have cold water thrown on it, if the Fed Heads drag out this accommodation talk.

Gold has been trading below its 200-day moving average since March, but is now $21 ahead of the 200-day moving average, so a very strong move, eh? This strong move could very well, see some short positions having to be closed out. And I like seeing those short positions having to be covered, with losses! Shorting Gold. what were they thinking?

And Oil. The price of Oil has reached $98 this morning. well, the dollar is down from last week, and basically down on a "dollar index" basis since reaching a high of 84.10 on July 24th. This morning, the dollar index is 81.38. I've said this before, but it's worth repeating. Gold and Oil are "anti-dollar" assets. So, using that thought, you'll understand why Oil is closing in on $100.

And, I can't forget Silver! And I'm not talking about the Lone Ranger's horse! I'm talking about the precious metal, that has climbed back to $30 an ounce! You know, Silver has actually outperformed Gold in like 7 of the last 11 years. I once wrote an article that was printed in a magazine (can't remember which one) that talked about Silver being the new Gold. I fell on my face with that one, eh? But. you never know!

We saw the HSBC version of the Chinese Manufacturing Index overnight. Remember HSBC does one, and then the Gov't does one. The HSBC reading is usually worse than the Gov't one. I tell you that, because the HSBC Manufacturing index for China shows that this month, the pace of the Chinese economy has really slowed. The Index # was 47.8 VS 49.3 last month. So not only has the U.S. Fed signaled the need for more accommodation, but this report if confirmed by the Gov't report, will signal that there is more accommodation needed in China. Let me say this again, for those of you who missed class the 100 times before that I've said it. But the difference here is that China has a treasure chest of reserves to use. The U.S. doesn't.

Well. did you see the report from the Congressional Budget Office (CBO) yesterday? Well, this non-partisan, independent, accounting office issued a report that said , "A deep recession is likely for the first half of 2013 if Congress goes over the fiscal cliff." OK. here's the back end of the financial storm that I've been talking about folks. So, it pays us to look into what qualifies a "fiscal cliff".

The fiscal cliff would be reached IF the Bush tax cuts expire AND the $1.2 Trillion in spending cuts go into effect as they are scheduled to do. (remember $1.2 Trillion is over 20 years, but still the cuts to spending would hurt the economy) Let's listen in to the CBO. "The massive round of New Year's belt-tightening, variously known as the fiscal cliff or Taxmageddon would disrupt recent economic progress, push the unemployment rate back up to 9.1% by the end of 2013 and cause economic conditions that will probably be considered a recession" - The CBO.

Folks. I love tax cuts just as much as anyone. And on the outside looking in, one would think immediately that we, as a country, can't afford the tax cuts. But, the debt has grown so much that abolishing the tax cuts is not going to be the elixir for what ails us. No. I've gone over this many times in the past, at this point, we, as a country, have only 3 choices in dealing with our debt.

1. We can increase our revenue (raise taxes). (It's coming!)

2. We can reduce our expenditures (cut deficit spending) (fat chance!)

3. We can allow the dollar to depreciate further and further to pay back debts with cheaper dollars. (looks like the easiest thing to do, right?)

My call on this is that we'll take what's behind door #1 and #3. and hope for the best!

Sorry to be the bearer of the bad news, but don't shoot the messenger! It's not as though, long time readers are hearing this stuff for the first time! I've become a broken record talking about debts, deficit spending, what's going to happen, etc. OH! And just because I said that allowing the dollar to depreciate further sounded like the easiest thing to do, doesn't mean that it's not going to hurt! Our purchasing power will be reduced, which is just another tax in my way of thinking!

Well. I was wrong, my heart went out to play, but in the game I lost you, what a price to pay.. I'm crying. OK. I know you didn't sign up to sing along with Smokey Bill Robinson, but it was my way of saying I was sorry, for being so wrong about something I said yesterday. Recall, and I'm sure you will, that I said that I thought Canadian Retail Sales would beat the forecasts of +.2%... But I was wrong! Canadian Retail Sales were very disappointing! OK.. this was June data, so take it with how ever many grains of salt that you wish. But, June Retail Sales fell -.4%... The sales of motor vehicles were really down. Which is what I was telling you yesterday, about the Bank of Canada's Gov. Carney, and him speaking to the autoworkers. That spelled weakness for the Canadian dollar / loonie to me. And the loonie did weaken a bit yesterday, but the drag from the other currencies higher, has the loonie moving higher again this morning.

This morning I saw a report on unemployment here in the U.S. and the report said that unemployment is up in 44 of the 50 states. That's not a good thing for the economy, and it's stuff like this, that really makes the collar around the Fed Heads' necks become very tight. But, at least Pfennig Readers won't be surprised with the backside of the financial storm that hit us in 2008, reaches our shores, for I've been warning you all about this for months now.

I can tell you that after 20 years of sitting on a trading desk, that working alone in one's office leave's one feeling very lonely. So, I came back out to the desk yesterday. I did mention the other day that I was going to have more surgery on my mouth. Actually, I have to have most of the jawbone on the right side of my face (the right mandible for those with medical experience) cut out, to get the cancer that's in the bone.

I dread the recovery and rehab. but, look at this as a way for me to lose some weight, which is much needed, as I won't be eating for some time afterward! I won't be talking much either, and that means that family and friends won't be shy about coming around, for they don't have to fear hearing me talk about debts, deficit spending, and the economy. Please, I ask of you, this is a decision I made, please don't send me notes telling me not to do it, or that there is a better alternative way. I've seen them all. please support my decision, that's all I ask. But I'll be away for at least 2 weeks, and probably more. the surgery is Sept 5. Make sure you light a candle that day.

Then There Was This. From Speigel.de "The severe drought in the US has been blamed the rising prices of agricultural commodities. But that is only part of the story: Biofuels, financial speculation and changing dietary habits are also playing a role. The global food supply faces pressure from all sides.

The American Midwest is experiencing its worst drought since the 1930s. One-sixth of the corn crop has been lost and the soybean plants and wheat stalks don't look much better. Shortages and rising prices for essential commodities are the result.

Some prices have soared by almost 50 percent within just 10 weeks, and grain warehouses are beginning to empty out. Other important supplier countries also anticipate poor harvests. Because of a prolonged dry period in Russia, wheat exports are expected to be only half of what they were last year. Brazil, on the other hand, has had too much rain, which is bad news for sugar-cane farmers. "The latest crop predictions suggest that we should fear the worst," the United Nations World Food Program warned last week. It is the third such warning in recent years, following similar crises in 2008 and 2011. Catastrophe, it would seem, is becoming the norm.

Sudden spikes in the prices of wheat, soybeans and corn threaten the wellbeing of every individual. Economists warn of "agflation," or inflation triggered by a rise in the price of agricultural products. Poor nations, however, are disproportionately affected because people there spend a larger share of their income on food. But consumers in the industrialized world will also feel the effects."

Chuck again. when they are writing about the drought in the Midwest over in Germany, you can bet the world sees this as a major problem.

To recap. The FOMC meeting minutes sent the dollar for a ride on the slippery slope yesterday afternoon, and Gold, euros, and Oil all saw huge jumps in their respective levels as the Fed Heads signaled that if the economy doesn't show some very good strength that they are prepared to implement additional accommodation, "fairly soon". Of course the downside risk of these moves higher against the dollar, is that the Fed Heads drag their feet on this accommodation, not wanting to be seen as political.

And this made me laugh so bad, I had to share it with you: From Late Night with Jimmy Fallon

. I want to wish happy birthday to Led Zeppelin singer Robert Plant, who turns 64 years old today. Which explains his new song: "Escalator to Heaven."

Currencies today 8/23/12. American Style: A$ $1.0475, kiwi .8155, C$ $1.0090, euro 1.2550, sterling 1.5875, Swiss $1.0445, . European Style: rand 8.2815, krone 5.8555, SEK 6.6305, forint 220, zloty 3.2480, koruna 19.8210, RUB 31.70, yen 78.60, sing 1.2460, HKD 7.7570, INR 55.27, China 6.3530, pesos 13.11, BRL 2.0160, Dollar Index 81.47, Oil $98.02, 10-year 1.68%, Silver $30.28, and China. $1,658.90

That's it for today. Hey! Have you checked out the Pfennig's new website: www.dailypfennig.com... Check it out and leave us a note! As time goes by, we'll have more content on the site, and other surprises! Little Braden Charles and his dad and mom stopped by the house last night. Braden is just walking, and still of the mindset that he can get where he wants to go, faster, by crawling! He's an excitable little guy, and loves to give kisses! Remember last week when I told you I pinched my two fingers in the garage door? Well, the other day, as we left to go to dinner, I pointed out the two bumps in the garage that outlined where my fingers were. My beautiful bride, was upset with me for messing up the garage door! Not, how my fingers were. In my best Rodney Dangerfield voice. I tell you, I get no respect! HAHAHA! Time to go. I hope you have a Tub Thumpin' Thursday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 08-23-2012 1:21 PM by Chuck Butler
Filed under: , , , ,