No Tapering Clues, But Lots Of Singing From The Same Song Sheet.
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In This Issue.

* Initially dollar gets sold, but that gets reversed!

* Gold spikes then fades and holds on.

* Chinese manufacturing recovers.

* RBI begins to change things.

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

No Tapering Clues, But Lots Of Singing From The Same Song Sheet.

Good day. And a Tub Thumpin' Thursday to you! Well. I was bang on with my thought that the FOMC Meeting Minutes would NOT contain any clues as to when the tapering of QE3 might start. But there wasn't even a Cupie doll as my prize. And the markets' reaction to the revelation that there were no clues, was also bang on. But what happened next was not on my agenda, and thus surprised me. So, I guess I'll spend all morning, explaining what happened next. Or. I could just touch on it briefly and move along to other things. OK, twist my arm, I'll take what's behind door number 2.

So, as I just said, there were no clues, and the initial reaction of assets like Gold was one of "go into rally gear". Gold ripped higher from yesterday morning's $1,367 to reach $1,379.38, and looked like $1,400 would be taken out in a New York Minute. The euro, which is the offset currency to the dollar, jumped too, but then a funny thing happened on the way to the forum. OK, not really funny as in funny-HAHA. What I'm talking about is after perusing the FOMC Meeting Minutes for clues, it occurred to those doing the perusing that a number of Fed Heads were singing from the same song sheet, and that song sheet contained the music to the "it's time to end QE melody".

And then the euphoria of the risk assets that no clues were in the minutes went poof! And soon we were watching the reversal and eventual down day for the risk assets. That reversal has continued through the overnight markets, with the euro losing almost 1/2-cent, and Gold struggling to hold on to a $2 gain. And that's all the news that's fit to print this morning, I'll talk to you tomorrow morning.

Alright, I won't go just yet. Although I sure there are quite a few of you who wish I would go away for good! HA! OK. Let's talk about the "other stuff" going on this morning. And there's no better place to start than with China. OK, long ago and in a not so far-away-place, I explained to you the two different reports on the same subject that get printed in China. I'm talking about the Manufacturing Index. HSBC Holdings prints one, and the Chinese Gov't prints one, and it seems like never do the two match up. HSBC prints their report first, and is usually the one that is on the weaker side of the Gov't report.

OK, now that we've got that out of the way, the HSBC report on the Manufacturing Index saw a big jump higher in July from a June reading of 47.7 to a July reading of 50.1. This index works just like the one here in the U.S. in that any reading above 50 signals expansion, and any reading below 50 signals contraction of the sector. If HSBC's report is this promising, the Gov't's report should be something!

But the thing that I want to point out here is that China's economy which had slowed down quite a bit in the 2nd QTR, looks as though stabilization is occurring. And I'm not there, I don't play a Chinese Gov't official on TV, nor did I stay at a Holiday Inn Express last night, but from my view in the cheap seats, I find this to be great news not only for China but for global growth. You see, this stabilization came about without Gov't stimulus. The Gov't told the markets & Banks to work it out and it appears they did! Sure, as I always say one month's data doesn't make a trend, just as one swallow doesn't make a summer, so we can't go all seashells and balloons here, just yet.

The Aussie dollar (A$) which slipped below 90-cents yesterday, is seeing some interest this morning from buyers that believe in the global growth story based on the HSBC report. This slippage from the A$ this week has come as a surprise to me, as I really thought the negativity surrounding the A$ had passed. The A$'s rally after the last rate cut had signaled that to me, but I guess the A$ was not ready for prime time. The markets' reaction to the Reserve Bank of Australia (RBA) meeting minutes hasn't helped the A$, but those backward looking words. I'm looking forward, folks. And the future of global growth is in good hands as long as China is cooking with gas.

The currencies that I think have good fundamentals are not performing the way they should be. They include: Norwegian krone, Swedish krona, Canadian dollar / loonie, Singapore dollar, Aussie dollar and Chinese renminbi, and Gold & Silver. Oh well, until the markets return to rewarding currencies with strong fundamentals, and something to sell that other countries want, we have to deal with these weak periods for these currencies.

It seems to me that right now, the markets are into rewarding currencies from countries with economic growth. If you look at the best performing currencies in the past 3 months, you would have the euro, Swiss franc, and British pound sterling would be in the top 5. Swedish krona ekes out a small gain, and the Japanese yen finishes out the top 5. The yen is a story onto itself, folks. I still believe that Japan's fundamentals are toast, and that the yen is rallying on borrowed time.

Economic growth is a good fundamental to have, so there's nothing wrong with using that as a reason to buy. But Economic growth has to go hand in hand with other things, and a HUGE debt like the U.K. has isn't one of them. about 12 years ago, when the U.S. was coming out of its recession caused by the Tech bubble bursting, we saw the same thing going on with currencies. In fact, some currencies would rally when the respective country would cut rates, which should debase the currency.

But if that's the direction the markets want to go, then who's to stop them? We have to adapt, innovate, change, and go with the flow. What the heck am I saying? That's not me! I don't go with anyone's flow! I'm usually out on the limb all by my lonesome! But. when it comes to a direction the markets are going, if I don't agree with it, I just batten down the hatches and wait for the air to clear.

My wife, who's leaving today for a few days with her mom, dad, and sister, will be devastated this morning to hear that her childhood heartthrob, David Cassidy, was arrested overnight in NY. A year or so ago, the two of us ran into David Cassidy at a restaurant in Juno Beach, Florida, and that's all she talked about for days!

Sorry, just saw that news and the next thing I know I was typing about it!

Well, the U.S. 10-year Treasury Note, hit a 2-year high in yield of 2.93% overnight (it's 2.91% right now) Remember earlier this week I showed you the loss in dollar terms when the yield was 2.87%... And also remember that our mortgage guys think the 10-year's yield will be over 3% by year-end, which would mean a higher than 5% mortgage yield.

I had a reader send me a note the other day, asking me why I thought the mortgage / housing recovery would stop if mortgage rates rose to 5%... It made me stop and think for a minute, in that it's true that people still bought houses back in the early 80's when mortgage rates were sky high. Shoot Rudy, my first house had a mortgage rate that was tied to the 90-day Treasury Bill, which at the time was 13.5%! So, I explained that when I said that, I didn't mean to say that the housing recovery would be wiped out. It will suffer though, until which time borrowers become comfortably numb with higher rates, that we haven't see in a year of Sundays! Like I did, when I signed on the dotted line for a mortgage with a 13.5% interest rate!

But remember, back then, rates were on their way down, so that 90-day T-Bill rate was on its way down, along with my mortgage rate! It would be quite different now 30 years later... And long time readers know how much I dislike the saying, "it's different this time".

I was reading last night (Cardinals played and won a day game, that I slept through most of) and came across some research that was saying the same thing I've been saying about how the economic data here in the U.S. will be the straw that stirs the Fed Heads' tapering drink. And the report repeated what I've been saying (Wait! Maybe they are Pfennig readers too!) that the U.S. economic data has NOT been the stuff that would lead anyone to believe that the tapering would begin.

We get the Weekly Initial Jobless Claims today, because it's a Tub Thumpin' Thursday! And, with all the focus on economic data, I guess this report will get more attention than usual. Look for the claims to be added to from the previous week, keeping the weak data trend going.

In Canada today, Canadian June Retail Sales will print, with hopes that it can wrap a tourniquet around the loonie. Unfortunately, after soaring 1.9% in May, June's Retail Sales are expected to fall .4%, due mainly from the floods in Alberta. I would hope that an averaging out of the data would be the way the markets look at this. but then, again one month's data doesn't make a trend.

I just saw a news story flash across the screens saying that Eurozone Services data had increased for the first time in 19 months! And it's highest level in 2 years! I'd have to say that the move out of recession territory has been decisive for the Eurozone, eh?

And we saw some market and economy moving decisions from the Reserve Bank of India (RBI) yesterday. The RBI partially eased its recent tightening measures, moving back to a bond purchasing program, and offering temporary relief to bank's bond investment and liquidity maintenance requirements. We immediately saw a pullback in bond yields. But the life preserver that the RBI attempted to throw to the rupee didn't quite make it to the currency. And once again another all-time record low in the rupee printed. I think that the rupee needs to see a huge shift in inflows, and with bond yields pulling back, and the forecasts for more rate cuts, the rupee is going to struggle for some time. But, if all these things that the new RBI Gov. get a chance to work, the tides could change in India.

For What It's Worth. I found this over at moneynews.com and it's an article by Michael Snyder, author of the Economic Collapse blog. He's talking about the rising Treasury yields, that I've highlighted since they began, and talked about the bubble bursting for over two years now. Let's listen in to what Mr. Snyder has to say.

"Investors who want to monitor the source of the next financial disaster should be keeping an eye glued to U.S. Treasury yields.

The yield on 10-year U.S. Treasury is regarded as a key barometer because it affects many other interest rates in the financial system, from mortgages to consumer loans. That yield has been nudging toward 3 percent in recent weeks, and is up nearly 120 basis points since the start of May.

Snyder cited a litany of potential ills if interest rates continue on their upward trajectory - it will be more expensive for the state and local governments to borrow money, the housing market will be harmed, consumer debt interest will rise and the huge amount of federal debt from quantitative easing (QE) could implode.

We are truly moving into unprecedented territory, because we have been in a bull market for U.S. Treasury for the last 30 years. Many investors don't even know that it is possible to lose money on U.S. Treasuries. They have been described as 'risk-free' investments, but that is far from the truth."

If Treasury yields hit 3 percent, it will be harmful to the U.S. economy and be a drag on stocks, Snyder stated. But he said a July Bank of America Merrill Lynch investor survey predicted that if yields rise even higher to 3.5 percent, it will trigger a "disorderly rotation" or spiral of higher rates.

According to Snyder, a primary reason Treasury yields are increasing is that foreign holders, who own a huge amount of U.S. bonds, are becoming net sellers.

"Unfortunately, there is no way that the party that the U.S. government has been throwing can continue without foreigners buying our debt."

Chuck again. Yes, this is a major problem for the U.S. and the fact that foreigners have been backing out of Treasuries is the reason the Fed has become the major player at the Treasury auctions. My back of the envelope figures have the Fed holding over $200 billion in mark-to-market losses in their balance sheet holdings right now. If they were a U.S. corporation, it would not be pretty.

To recap. The FOMC Meeting Minutes didn't contain any clues as to when the tapering would start, but it did show broad support with most of the Fed Heads singing from the same song sheet. And that sent the dollar higher, VS Gold and currencies. Looks like the markets have changed horses in the middle of the stream again, and are now rewarding currencies from countries promoting growth.

Currencies today 8/22/13. American Style: A$ .8990, kiwi .7815, C$. 9530, euro 1.3310, sterling 1.5570, Swiss $1.0780, . European Style: rand 10.3350, krone 6.09, SEK 6.52, forint 225.05, zloty 3.1865, koruna 19.3290, RUB 33.15, yen 98.65, sing 1.2830, HKD 7.7555, INR 64.62, China 6.1698, pesos 13.22, BRL 2.4540, Dollar Index 81.63, Oil $104.33, 10-year 2.91%, Silver $23.04, Platinum $1,518.57, Palladium $747.43, and Gold. $1,368.26

That's it for today. Good luck today to my good friend, Duane Moody, who is having surgery on his disconnected bicep. The surgery sounds like it will be more painful than the actual tear was. Cardinals hit 3 homers in a game! There's been a real "home run drought" this summer with the Cardinals, but as long as they keep winning series I'll be happy! I have a video interview with Joe Deux at the Street.com this morning. It won't take long for them to post the video on their site, so if you want to hear me talk about Gold. here's your chance! I sure hope I get more people to view the site than I had come to listen to me talk last week in San Francisco! OK.. 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 08-22-2013 1:03 PM by Chuck Butler
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