Bank of Canada Softens Tightening Bias.
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    In This Issue.

    * Bias to buy dollars emerges.

    * China prints strong manufacturing index.

    * Eurozone manufacturing improves.

    * Back to selling yen.

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

    Bank of Canada Softens Tightening Bias.

    Good day. And a Tub Thumpin' Thursday to you! A very long day in the office for me yesterday, and then out to Alex's wrestling meet, has left me draggin' the line this morning, but. I don't feel bad right now, so I've got that going for me! One of my fave economists, Nouriel Roubini, is talking on the Bloomberg TV channel from Davos this morning. From what I can make out of what he's saying, I don't think he's a fan of kicking the can down the road. But, he points out. until the markets say no more, the can will continue to be kicked.

    And let's see. The Gov't bailed the markets out in 2008, so. they "owe" the Gov't one, right? And that's why I believe the markets, bond vigilantes and so on, are letting the Gov't go Ollie, Ollie Oxen Free right now.. Hey! That's just how I see it, doesn't mean it's the gospel!

    So. the currencies and metals once again traded in tight ranges, with slippage in the morning, and a recovery in the afternoon, which made two consecutive days of that pattern. But, we've seen a change in the pattern in the overnight markets, with the bias slipping back to buy dollars, and most of the currencies and especially the metals have backed off their levels of the past two days.

    I would like to think that this is just normal trading, for the euro hasn't succumbed to the bias to buy dollars so far this morning. But, I'm afraid that we've slipped back into that darn Risk On / Risk Off load of bull-dookie that we stepped in over 4 years ago. The reason I say that about the slipping back to Risk On/ Risk Off is that the only thing I can find that points to the bias changing is the earnings report by Apple last night. Apparently Apple reported their weakest earnings growth since 2003, and their weakest sales increase in 14 quarters.

    Stocks all over the world are seeing problems, and so, in my opinion, we've slipped back into the Risk Off fun and games. I hope this is just a one-off relapse, and that this Risk Off trading is quickly exited, for we had seen all the signs that we were back to trading on fundamentals, and not willy nilly sentiment of traders to throw all asset classes into a barrel and trade them.

    The U.S. dollar SHOULD be getting taken to the woodshed, given the decision yesterday by our leaders in the House of Representatives to suspend enforcement of the U.S. debt limit until May 18. Have we now become Comfortably Numb on the debt limit too? Sure looks like it to me. and therefore the dollar should be getting taken to the woodshed, but it's not. and that's what's going on today.

    I had to stop and smile when I saw this quote by Axel Weber former Bundesbank President, and now Chairman of UBS. "While European Gov't's approach fiscal curbs by looking to pullback, the U.S. runs into its limits by squabbling how to increase them."

    Another thing that should be driving nails in the dollar's coffin are the Fed's meeting details that get released 5 years after the meeting took place. This is where Bill Fleckenstein got a lot of his information on what former Fed Chairman, Big Al Greenspan, was doing behind the scenes. I've mentioned Bill's book quite a few times in the past, but if you still haven't picked it up to read it, you should, just so you understand what the Fed is doing to us. You can find it on Amazon, it's called: Greenspan's Bubbles: The Age of Ignorance at the Fed by Bill Fleckenstein.

    You can see in the notes that 5 years ago, the Fed still didn't see the smoke from the fires in the economy. So. if they didn't see it then, what makes anyone believe they would see it this time? Any way. The Fed's FOMC will meet next week, and I'm sure they will tell us that the economy is not out of the woods, and there is still a need for stimulus. Yesterday, Morgan Stanley's chief, Gorman, basically said that the economy is still in need of stimulus.

    Of course, long time Pfennig readers know that I've said for some time now that the U.S. economy has gotten addicted to stimulus. to break the economy from this addiction is going to be very painful.

    One of my fave writers, Caroline Baum, wrote a piece titled: "How Fed Learned to Stop Worrying and Love Zero" - This is a great snippet: "Color me skeptical. When I read the 82-word sentence outlining conditions to be met before the Fed would start raising rates, all I could think of was Winton Churchill's description of the Soviet Union: "a riddle, wrapped in a mystery, inside an enigma." I doubt the Fed will unwrap it when it meets next week."

    Well the two-day respite that Japanese yen was getting ended overnight. I told you yesterday that I didn't think those that were buying yen because the Bank of Japan (BOJ) was delaying their next round of stimulus were allowing the elevator to go to their top floor. I just put together some notes for one of my presentations next week at the Orlando Money Show, and in doing so, I noticed that Japanese yen has dropped 12% in the past 6-months. I don't think the losses will stop there. but that's just my opinion, and I've said the same thing about yen for the past year.

    Hey. HSBC Holdings Plc printed their version of Chinese manufacturing last night. (recall, I've explained that there are two manufacturing index prints in China, one by HSBC and the other by the Chinese Gov't). Usually, the HSBC print is not as lofty, albeit by small numbers, as the Gov't report. So. when the HSBC version printed and showed a gain in the index from 51.5 to 51.9 for this month, I got a little giddy.

    This data should have been manna from heaven for the Aussie dollar (A$), but. I think the Apple earnings news was just too much to get past for the risk assets, this morning. The A$ has slipped back below $1.05 this morning, but it's not from the Chinese data. That's why I'm thinking that this slippage below $1.05 this morning is an opportunity to buy at a cheaper level. Of course, that's just my opinion, and I could be wrong.

    Speaking of manufacturing reports. The Eurozone, continues to show signs of recovery, as their Manufacturing Index for the 17-nation union climbed to 48.2 in January from 47.2 in December. Still below 50, the line in the sand between expansion and contraction, but an improvement nonetheless.

    The Canadian dollar / loonie slipped below parity after the Bank of Canada (BOC) hung the currency out on a line. The BOC left rates unchanged, as expected. but then surprised the markets by softening their tightening bias. The BOC said that "any change is likely to come further in the future than was previously thought."

    Uh-oh! You think the markets were upset with the fact that the BOC never carried through with their bias to tighten? They are really upset by this softening, which they didn't see coming. And the loonie gets taken to the woodshed. My initial thought was that this was a temporary move, but the more I look at this, a lot of capital was gained on the thought that the BOC was going to raise rates soon. The loonie could be in for an elongated trip to the woodshed. But. still remain relatively strong, folks. What am I talking about?

    Well. 10 years ago, the loonie was 65-cents. so. even if the loonie slips now to 95-cents, that still relatively strong VS 10 years ago, eh?

    Then There Was This. You all have heard me talk about China's hoarding of Gold to use as a backing for their currency when they decide to float the renminbi/ yuan for a couple of years now, so I always enjoy seeing someone else jump on my bandwagon. This time it's the long-time, well respected money manager - Stephen Leeb. Here are a couple of snippets of a recent interview with Stephen talking about China and their Gold.

    "I see the Chinese plan in terms of what they want to do, I see their economy turning around, and most important their push into gold.

    I know KWN published a piece last night which said the World Gold Council is saying that China does plan to back up their yuan with gold. Of course that's what they are going to do. They clearly want the world's reserve currency. They yuan is constantly increasing in use in Asian (business) dealings. There is no doubt that's going to continue to grow. China could (already) have the second largest gold reserves in the world, even ahead of Germany. What is confirmed by everything you can see is they are importing as much (gold) as they can without trying to disturb the price of gold. You won't believe what's going to happen (with the price of gold). I'm telling you in 3 years people will not believe the price of gold." - Stephen Leeb

    Chuck again. great stuff. more and more, people are jumping on my China and the gold backing to their currency bandwagon. Come on. there's more room!

    To recap. The two-day trading pattern of tight trading ranges for the currencies and metals gave way to a bias to buy dollars overnight. Apple had some weak earnings news, that catapulted the risk assets back into the Risk On/ Risk Off trading arena. China saw a strong manufacturing print, and the Eurozone saw an improving manufacturing index. The Bank of Canada hung the loonie out on a line by softening their tightening bias, and the Japanese yen gets back to losing ground.

    Currencies today 1/24/13. American Style: A$ $1.0490, kiwi .8410, C$ .9990, euro 1.3335, sterling 1.5825, Swiss $1.0760, . European Style: rand 9.0420, krone 5.5635, SEK 6.5180, forint 221.25, zloty 3.1425, koruna 19.1830, RUB 30.12, yen 89.60, sing 1.2280, HKD 7.7530, INR 53.68, China 6.2197, pesos 12.69, BRL 2.0355, Dollar Index 80.03, Oil $95.51, 10-year 1.81%, Silver $31.85, and Gold. $1,677.50

    That's it for today. I was gone last week, when my younger brother, Mike, celebrated a birthday, so Happy belated birthday! Mike was born when I was in High School, so. that means he's getting old! I received a call from an old high school classmate last night, she informed me that a group of classmates are putting together a 40-year high school reunion. YIKES! Not the dreaded 40-year HSR! It will be this year. UGH! I bet no one will recognize me! I don't keep in touch with many people from my high school years, and the last reunion we had was 15-years ago. oh well. I hope you have a Tub Thumpin' Thursday!

    Chuck Butler
    EverBank World Markets

    Posted 01-24-2013 12:56 PM by Chuck Butler
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