More Strong Data For China.
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In This Issue.

* Currencies drift back and forth .

* Chuck's thoughts on Fed bond buying.

* Bill Gross's thoughts on Fed bond buying.

* Merry Christmas!

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

More Strong Data For China.

Good day. And a Happy Friday to one and all! Already a Fantastico Friday in my book, as this is the last time I have to wake up before the farmers for nearly two weeks! YAHOO! I had a gift waiting for me on my desk when I arrived, and as I open it, it's Chocolates! Yum! But not too many for me, I have to keep my girlish figure! HAHAHAHAHAHAHAHA! See? I'm a happy camper this morning. and it has nothing to do with what the currencies and metals did in the overnight markets!

Well. nothing new to talk about regarding the Fiscal Cliff drama. And to think, today, the lawmakers were supposed to be cleaning out their in-boxes and heading out the door for their Christmas holiday. Don't you feel sorry for them, having to stay and continue working on ways to kick the can down the road? Actually, they created this mess, and as my mom used to say. "you've made your bed, now lay in it" The unfortunate part is that the bed the lawmakers made, hurts us, in many ways, that most Americans have no clue about. (because they don't read the Pfennig! HA!)

So. with nothing new from the lawmakers, the currencies and metals continue to drift about, with some gaining and some losing VS the dollar. Yesterday, I told you that the currencies, for the most part, were drifting lower. That drifting lower actually turned to drifting higher as the day went on, and there's a slight tone of risk in the markets this morning, but not much of one. The bleeding in the Gold price (& Silver!) has stopped for now. I'm well aware that the NY market boys and girls could very well take this down very quickly, so I'm writing on egg shells this morning.

As we get closer to Christmas, we'll begin to see volume slow down, and hopefully the volatility slow down too, as traders head out the doors to begin their holidays. But today, I believe we're "full-on", so let's get to the news, eh?

The euro is knocking on the door to 1.31 this morning, having touched it briefly yesterday afternoon. We saw last week that 1.31 was a tough row to hoe for the traders that wanted to keep the euro above 1.31. And so it appears to be so again now. The best performing currency overnight was the Chinese renminbi /yuan, and the worst was the New Zealand dollar, but in reality these ranges are very tight, so the movements have been small either way.

Spain's Prime Minister, Rajoy, had some interesting things to say this morning about the Eurozone, and they play very well with my thought that the euro is the biggest surprise for 2012, given it didn't collapse in price like SO MANY economists and pundits said it would for the past two years! Rajoy said that , "a year ago, the European Union was only talking about austerity, but today the European Union is now talking about growth and EU architecture."

The reaction by the markets to the Fed's announcement on Wednesday was as I thought it would be. muted. We've all become Comfortably Numb to the numbers, folks. Shoot, I even fell into that trap yesterday morning, not making a big deal out of the fact that the Fed will begin in January to buy $85 Billion per month in mortgage backed and Treasury bonds. I wonder what the "bond guys" really think of all this "buying" by the Fed. The Primary bond dealers are smiling like Cheshire Cats, for the Treasury issues the bonds, and the Primary bond dealers are required to take up the bonds that aren't sold in the auction, but in this case, they'll probably line up at the door to buy as many bonds as they can, because, they'll just turn around and sell them to the Fed. and, yes, there's a shekel or two to be made there by the Primary Dealers. like Goldman Sachs, and others. It's a sweet deal, folks. but for the rest of us. not so sweet!

But $85 Billion per month. You know, my question, if they ever allowed me to ask a question of a Fed Head (remember in 2011, when I had my chance at a meeting with St. Louis Fed Head, James Bullard, but was unable to talk, because it was when I was receiving radiation on my mouth? ) I would ask them to show me where the previous 3 rounds of bond buying did anything to eliminate the jobless problem. For that's what the Fed Heads are hoping all this bond buying does. At least in Public that's what they want us to believe.

For someone like me that is always looking under the hood, and in the wheel wells and the undercarriage for clues to why the car/ economy is not riding smoothly, I believe that this bond buying is nothing more than the Fed keeping interest rates low so that all the debt issues (Treasuries) that the Treasury issues have low interest rates, which keeps the debt servicing costs low (relatively compared to what they would be if rates were normal, say 5%) And as long as foreigners don't balk at the bond buying, and the U.S. public just shrugs their shoulders and says play that funky music white boy. No wait! That's not right! How could I inject a Wild Cherry song in a serious discussion? Why not? But as long as the U.S. public doesn't question our leaders as to what the unintended consequences could be from all this bond buying, the Fed Heads will just keep playing that funky music, right. lay down the boogie and play that funky music till you die!

Well. I've said this so often lately, I sound like a broken record, or for you youngsters, a scratched CD, or damaged MP3. But, Gold seems to be the bellwether regarding how the Fiscal Cliff talks are going. I find it pretty stupid to trade this way, but it is what it is. and so we carry on. at least knowing the reason Gold either booked a profit or loss that day.

The other day, I told you about the good results of the Canadian Trade Deficit report. And yesterday it was reported that Canadian household net worth rose by $70 Billion in the 3rd QTR to a new record high of $6.92 Trillion! Now, that's pretty impressive folks! The aggregate wealth of Canadian households has reached its highest level on record! Add to that, the fact that the annual rate of increase in household debt has shown considerable moderation in 2012, and credit growth is around a decade low.

The Canadian dollar / loonie is flat on the day, but did rally a bit when this report printed yesterday morning. I talked with an old colleague (more on old colleagues in the Big Finish) last night, and he was telling me about his Canadian bank account, and how he really believes that Canada will be the place to be when the U.S. economy collapses. Quite an uplifting conversation, eh? Well, the important thing of the whole conversation is that he's diversifying his U.S. dollar holdings, and with a good fundamentals currency.

Have you ever seen those temporary tattoos? You know you press them on with a wet cloth. I was given one yesterday that's a classic design and says "Fiscal Prudence". pretty good, eh? Speaking of Fiscal Prudence. I see that Goldman Sachs is claiming that the Norwegian krone is its first "Top Trade for 2013". Remember what I always say about these Financial Institutions making calls on currencies and metals. You have to think that they could be long, and want everyone else to buy too, to drive up the price of what they own. But Norway is the poster child for Fiscal Prudence, and I think that we could very well see a rate hike in Norway in the 1st QTR of 2013. put those two things together, and G.S. could be right. but that's just their opinion folks, they could be wrong, and wouldn't mean a hill of beans to them to be wrong, whereas when I'm wrong, I feel so bad, that I shy away from giving my opinion again.

China posted a stronger than expected HSBC manufacturing index last night. Recall that I've explained that China posts two reports on their manufacturing. One is by HSBC (Hong Kong Shanghai Bank) and the other is by the Gov't. The HSBC report always prints first, and last night it printed with an increase in the index number to 50.9 (from 50.5). And Chinese power consumption showed that November's consumption growth of 7.6% was the highest growth rate since February. So, again, all signs point to China turning on to recovery street, as I've told you for a couple of months now.

I had a reader doubt what I was saying about the Chinese recovery, and ask me how the Chinese would recover if the U.S. economy & Eurozone economy were going nowhere. Ahhh, that's a good one, and is predicated on the thought that China's economy only grows by exporting to the West. But what about the rest of Asia, where the only "real economic growth" is occurring outside of the Emerging Markets? And what about China's move 4 years ago to begin to wean themselves from the cocaine of exports and create domestic demand? There's your answers. And don't forget that even if the U.S. economy goes nowhere, U.S. consumers will still be spending money, obviously not as much, but still spending it even if they don't have it in the bank!

Looks like the Fed's buying of Treasuries needs to start right now instead of in over 2 weeks. I don't know if you chart these things or not, so I'll just tell you that the yield on the 10-year Treasury has risen from 1.60% on Monday to 1.73% this morning. Hmmm. seems very interesting don't you think? Every time we've seen the yields rise in Treasuries the past few years, the Fed steps in and buys, bringing those yields back down. And that will be the case here too, in two weeks!

Before I go to the Big Finish, here's a funny. a good friend, and former colleague (thanks Ann!) sent me the Oinion's steps to dealing with the Fiscal Cliff. and one of the steps is "raise the cost of fishing licenses to $140,000". funny stuff!

And a great time last night at a party that's put together by Frank Trotter, John Dubinsky, and Chris Lissner, that gathers ex-Mark Twain Bank people. I got to see one of my fave people from back in the day, Janet Young. I hadn't seen here in over a decade! The two of us used to do a duet whistling anchors away, talk about bringing down the house! But a great time seeing the wiley old veteran Jack Milner, and Mizzou buddy Dean Shilitto among many others. thanks to Frank, Chris and John for the invite!

Then There Was This. From Bloomberg. Bill Gross of PIMCO the world's largest bond fund was talking about the Fed's new bond buying program. let's listen in. "What really happens, and this is critically important, is that the Treasury issues bonds and the Fed buys them and then it remits interest to the Treasury. It means the Treasury is issuing debt for free. There are complications. Inflation is one of the complications. Inflation, so far, has been held in check and "we are well below 2 percent and the Fed is comforted by that," Gross said. "But ultimately, if you write checks for free and if it's costless to finance a fiscal policy that is well into a deficit figure, yes, that's an inflationary moment to the extent that the private sector gets some animal spirits and takes that bait."

Chuck again. yes. but. if we all put on our memory caps we'll remember that Big Ben Bernanke said that he wants inflation (not a lot of it, but some). So, maybe this is "part of the plan". He obviously knows something that the rest of us don't, right? OK, I almost said that with a straight face! HA!

To recap. the drifting lower by the currencies yesterday morning turned to drifting higher in the afternoon, but the ranges are so small it's hardly noticeable. China printed more proof that their economy has turned the corner, and the housing problem in Norway, is going to push the Norges Bank into a rate hike early next year. or at least that's what Chuck things will happen!

Currencies today 12/14/12. American Style: A$ $1.0525, kiwi .84, C$ $1.0160, euro 1.3085, sterling 1.6115, Swiss $1.0820, . European Style: rand 8.66, krone 5.6380, SEK 6.70, forint 216.90, zloty 3.1220, koruna 19.2810, RUB 30.76, yen 83.70, sing 1.2215, HKD 7.75, INR 54.48, China 6.2453, pesos 12.80, BRL 2.0835, Dollar Index 79.95, Oil $86.80, 10-year 1.73%, Silver $32.55, and Gold. $1,697.17. and the U.S. Debt Clock click here:

That's it for today. and for the next two weeks. Chris and Mike will have the conn through Christmas, and I'll be back in two weeks. Tomorrow is my sister Terri's birthday, and the 15th was always the day, as a kid, that we used to go pick out our Christmas Tree, so good memories for the 15th. Next week will be Jennifer's and Ty's birthdays. So happy birthday to you two! I've been working with Jen for so long now, that I think she doesn't count birthdays any longer! I'm the one that looks much older though not her! You know, I know that I speak to many religions in the Pfennig, but for me, I celebrate Christmas, so I say Merry Christmas. And it's since it's time to get this out the door, I'll leave you with my fave saying at Christmas. May the light of faith, the warm of heart, and the love of family be your gifts this year. I get as excited as a kid around Christmas, for it brings back so many great memories. I used to be the Santa for the kids' school, and our neighborhood, stuff like that is always fun to think about. So, I hope those of you who celebrate Christmas, have a Merry Christmas. I'm outta here!

Chuck Butler


EverBank World Markets



Posted 12-14-2012 12:28 PM by Chuck Butler
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