The Dollar's Sword Swings In All Directions.
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    In This Issue.

    * Even so-called safe havens get sold.

    * The new and improved GDP prints!

    * Canada prints Current Account Balance.

    * BCB hikes rates 50 basis points!.

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

    The Dollar's Sword Swings In All Directions.

    Good day. And a Tub Thumpin' Thursday to you! All is well with the employment situation, and it was, as I thought, just a technical glitch in the security system. I had a lot of fun with the whole thing, even though the whole morning yesterday was a royal pain! Thanks to those you responded with warnings of everything from leaving EverBank if I left, to starting riots! I got a kick out of all of them! And I truly love the back and forth when it doesn't get mean spirited!

    Well. the two-edged sword that's been slicing value away from the currencies this week, and consists of the war drums beating in Syria for the U.S. and another day closer to the FOMC meeting where tapering could begin, is really slicing deeper this morning. It's like a perfect storm for the dollar right now. But, as I keep saying and saying about Tapering. it's not a change in monetary policy! It's simply a tapping of the brakes, for if things go as I see them going, by next spring the Fed Heads will be frantically running about, doing their best impressions of Chicken Little. And if that happens, QE4 will follow shortly thereafter.

    Now, I say next spring, but Shoot Rudy, that's being optimistic on my part that the Fed Heads will see how badly they misinterpreted what the economy was doing. I may be giving them more credit than they deserve. I mean, I'm giving them 6 months to get this corrected. But in reality it may take them longer, for they'll want to be "completely certain" that they need to go back to bond buying. And again, folks, don't take this as me saying this is what I think we should do. I'm simply telling you what the Fed Heads will feel that they have to do to "fix the economy".. If it was all up to me, I would have never started down this road that began in March 2009, with QE1.

    The other side of the two-edged sword slicing the values from the currencies, the Syrian war drums beating, looks to be headed firmly in that direction, as I see reports this morning that U.S. battleships have surrounded Syria. Of course my geography mind kicked in and wondered how the battleships could "surround Syria" when Syria only has one border that faces water. But that's what the report said, but I'm sure you get the picture. The U.S. Gov't wouldn't allow the media to tell us that, if they didn't want everyone to know that the U.S. is flexing its military muscles once again. Hey! We accused Saddam of using chemicals on his people, and look how that accusation has worked out for us.

    So, the two-edged sword is swinging in all directions, and even the euro, yen and francs which earlier this week were bought as "safe-havens" , are getting sold VS dollars this morning, along with Gold! The shiny metal was really looking strong yesterday morning, and then the rug was pulled out from under it. And yes, it looked yesterday like the manipulation was back, but then the loss was only $10. So, maybe not, maybe just profit taking from the huge run this past week in Gold.

    I have come to the conclusion that during this period of "tapering", and before the Fed Heads realize they created a big mess, the dollar will be the cat's meow. Makes sense to a degree, the dollar was sold on all the bond buying because in its pure form it's nothing but money printing. So it makes sense for those sales to be reversed to a degree when the bong buying stops. I say, to a degree, because think about it. are the buys being reversed? NO. And, are short term rates being moved higher? NO. And does the Fed still have a monetary base around $4 Trillion, that has HUGE mark-to-market losses? YES. And does the U.S. still have a $17 Trillion debt, with unfunded liabilities of $125 Trillion, of which Professor Lawrence Kotlikoff says is not correct and the number is more like $250 Trillion. YES.

    That's makes two No's. and two Yes's. Unfortunately for us that's what we have before us, and if any trader worth his Sunday Best, would stop and look at this stuff, instead of blindly joining the Lemmings at Lover's Leap, and buy dollars, then we would have sanity in the currencies. I'm always doing the George Constanza and saying "sanity now". ( he used to say, "serenity now")

    Well, the Indian rupee, which is the answer to the trivia question, of "which currency is the worst performing currency VS the dollar for 2013?", is rallying this morning. But we saw this late last week, when the Brazilian Central Bank (BCB) announced the $60 Billion plan to buy reals VS dollars to stop the weakness and support the currency. This move in the rupee was brought to us courtesy of the Reserve Bank of India (RBI) who announced that they would provide foreign currency to 3 different Oil companies, which will take some of the heat off the Oil importers.

    Being the smart-alec that I am, I would ask the RBI where this has been for the past couple of months? What took them so long to figure this out, that the markets wanted to see this, especially now that the price of Oil is surging on the war drums beating in Syria. But, the RBI did do it now, and the rupee gets to frolic in the autumn mist in a land called Honah Lee.

    Speaking of autumn. I know we're still in Summer. One doesn't have to be outside very long to figure that out, with temps around 100 here in the St. Louis area, finally! But, I wanted to make a note that the sun is beginning to move south again, as I track it outside our office window that faces east, and I get to see the sun rise each day that I'm here at my desk and not on the road or at the guard's desk! HA! I also noticed the other day, when I was sitting outside, that the Ash trees are beginning to lose their leaves. That's the first sign of autumn. I'm sorry to go off on this tangent about autumn. but have you ever heard the great song by the Strawbs called: Autumn? I sense Autumn coming on, The mist has hung low all day, Small birds gather on the wing, Preparing to make their way. The trees begin to show, A trace of brown among the green, Bringing back the memories, That only you and I have seen. Classic rock song for sure! And a Kewpie doll award for anyone that knows what the name of the band was before the Strawbs. (no checking on Google!)

    OK. Again, sorry. But I find myself doing that from time to time, for no apparent reason, other than something pops into my head, and the next thing I know, my fat fingers are going at light speed across the keyboard!

    The U.S. data cupboard will print the 1st revision of 2nd QTR GDP today. The other day, I told you that the experts have the growth in the 2nd QTR at 2.2%... But I still believe it will be below 2%, but maybe not in time for this revision. A 2.2% gain in the 2nd QTR is good enough to allow the Fed Heads to begin tapering. But a print below 2% which is where I think the final revision will fall out, won't be looked at so optimistically.

    We also can't forget that the "new way to calculate GDP" began in July. and that's supposed to add 3% per year. You know, I talked about this when it was announced. that we now will include R&D spending, art, music, film royalties, books, theatre to GDP. I have a major problem with the R&D spending, which shouldn't even be accounted for as investment. But it is now, and will add as much as 3% per year to our GDP numbers.

    Which is just another case of: If you can't produce a good number, then just change the way you account for it. This is what was done with CPI back in the 90's, and what's being done with GDP, that wouldn't show greater than 2% growth. But now it will, because we changed the way it is calculated. Genius. simply Genius!

    Tomorrow we'll see the color of two of my fave economic reports, Personal Income and Spending, as we end the month, yes. August comes to an end this weekend, with those two reports along with the Personal Consumption tickers, and the U of Michigan Consumer Confidence for the first two weeks of August. I wonder how many traders will actually be at their desks tomorrow, given their usual early departures ahead of 3-Day Holiday Weekends.

    Today is an important day for the Canadian dollar / loonie, in that they will print their 2nd QTR Current Account Balance. I think that given the inability of a lot of countries to find deficit funding at low rates, that any sign that the Current Account deficit is widening would not be good for the loonie, and vice versa should the deficit remain contained. The previous print was a deficit of C$ 14.1 Billion in the 1st QTR. Anything around that figure will put the debt to GDP ratio around 3.2%... Not good. but not as bad as some. namely Canada's neighbor to the South..

    I noticed yesterday that new Bank of England (BOE) Gov. Carney, was doing his best to appease the bond markets by saying that the BOE could return to bond buying if the economic data suggest the need. I find that to be like giving the markets a sucker, patting them on the head and showing them the door. And the pound sterling buyers didn't like it either. But I'm going to give Carney a pass on that this time, for he recovered in time to say this little ditty, that I truly love. " The U.K. can't devalue its way to prosperity". Hello? Currency Wars countries? Are you listening?

    I saw on my Linked-in updates this morning that U.S. Banks have piled up $103 Billion in legal costs since the financial meltdown 5 years ago. With 40% of those expenses being put on the books since Jan. of 2012. Read, Dodd-Frank, CFPB, SOX, Foreclosure settlement, and other things that are now being dealt with. Sure all of you who don't work in a bank, think that banks ran amok in 2007 and should have mountains of regulation. But just think about that for a minute. We already had the regulation, we just didn't have the enforcement. More regulation for banks means more legal bills, and less money to pay in dividends, and salaries, thus losing good employees, and this is the biggest problem. Regulation here, means that it will spread everywhere, for what's good for the goose is good for the gander, right? I'm just saying.

    I find that the price of Gold this morning being down is interesting, for everyone is talking about how Gold miners in S. Africa are going on strike come Sunday. We're not talking the old-school wild-cat strikes where workers would walk out, and then come back a few hours later. These Gold Producers are talking about 3- month strikes. So, what's a 3-month strike in the largest Gold Producing country going to do to supply? And what SHOULD that be doing to the price of Gold? Yes, one should be going down, and the other should be going up. I can't believe the markets are watching this, when little old me here in St. Louis, Mo. does.

    Stevie Nicks is singing her great song, Landslide to me right now, so excuse me for a minute as I sit back and think about Stevie singing to me. OK. I'm back now. Speaking of striking workers. Fast-food workers in 50 U.S. cities plan to walk off the job today in an attempt to get companies like McDonald's & Wendy's to raise wages. The non-union workers are asking for $15 an hour, which is double the min wage of $7.25, and more than the avg wage earned by the workers now of $9 per hour. All I can think of here is that the cost of a Quarter Pounder with Cheese, my saving grace as a hangover cure, is going to go up big time!

    The Fed hangs its hat on the fact that CPI (consumer inflation), which is about as useful as a pay toilet in a diarrhea ward, hasn't shown any wage inflation. I wonder what a huge upward adjustment like this would do to wage inflation.

    And finally before we head to the Big Finish. The Bank of Brazil (BCB) raised their interest rates again yesterday for a third straight meeting. This time the BCB opted to hike rates 50 basis points (1/2%) to an internal rate of 9%... And already, the calls for another 50 Basis Points to be added at the next meeting have been made. The BCB, who used to cut rates in the face of high inflation to weaken the real, have done a turnabout and now hike rates to fight inflation and stop the bleeding in the real.

    Long time readers will recall me taking the BCB and the Brazilian Gov't to the woodshed when they initially cut rates to weaken the real in the face of high inflation. I really ripped on them for their idiotic move. It's nice to see that the BCB and Brazilian Gov't have finally seen the light like Todd Rundgren. It was late last night, I was feeling something wasn't right, there was not another soul in sight. and I saw the light in your eyes.

    For What It's Worth. I found this on one of my fave sights to visit and read stuff, It was an interview with the world's top investor, Jim Rogers, who has been a friend of ours here going back to our days at Mark Twain Bank. Jim believes that the Syrian War is going to send Gold much, much higher. let's listen in to the famous Jim Rogers.

    "Well, Tara, I own oil, I own gold, I own things like that and if there is going to be a war, and it sounds like America is desperate to have a war, they're gonna go much, much higher. Stocks are gonna go down, some of the markets that I'm sure are already going down, commodities are gonna go up. I mean, yeah, some of the things I own all make a lot of money. It's, I'm not particularly keen on war, I assure you, but it sounds like they want it."

    When asked if Jim's main concern was about the supply chain for Oil?

    "Well, that's where we'll see huge moves but the problem with war, Tara, is -- and I'm not the first to know this -- no matter how well the plans are made, strange things happen in war and who knows what unintended consequences will come. But I do know that throughout history whenever you had war, things like food prices have gone up a lot, energy prices have gone up a lot, copper price, lead prices: you know, all of these things go up a lot whenever there's been a war in the past."

    Chuck again. Jim goes on to say, "when this artificial sea of liquidity ends we're gonna see panic in a lot of markets, including the U.S." Sounds like Jim and I are singing from similar song sheets.

    To recap. The dollar's perfect storm of having a two-edged sword swinging in all directions is paying huge dividends to the dollar, as even the so-called safe-havens of euro, yen, francs and Gold are getting sold today. The U.S. will print their 1st revision to 2nd QTR GDP. remember, the "new way to calc GDP began in July". Canada will print their 2nd QTR Current Account balance today, and will weigh heavily on the loonie should it expand.

    Currencies today 8/29/13. American Style: A$ .8935, kiwi .7775, C$ .9520, euro 1.3255, sterling 1.5515, Swiss $1.0775, . European Style: rand 10.3160, krone 6.0710, SEK 6.57, forint 226.45, zloty 3.2270, koruna 19.3710, RUB 33.18, yen 98.20, sing 1.2755, HKD 7.7555, INR 66.59, China 6.1690, pesos 13.25, BRL 2.3435, Dollar Index 81.84, Oil $109.16, 10-year 2.79%, Silver $24.23, Platinum $1,528.93, Palladium $740.48, and Gold. $1,412.70

    That's it for today. Well, once again I was the kiss of death for something I was talking about glowingly. This time it was my beloved Cardinals who looked really bad last night, after I had a conversation with Jack Stapleton about how good they looked recently. Well, do you have Big plans for the Holiday Weekend, the last one of summer? We'll have the Annual Butler Labor Day BBQ, which is about all I can deal with! We've done this party for a long time now, and my back yard has changed big time in those years, but I have no changes for everyone this year. I almost said to heck with it this morning, and went back to sleep. But I heard that little voice say, get your rear end out of bed, Chuck! Little Braden Charles was at the house yesterday, he sings his ABC's now, so cute. I tossed a block into a box, and he immediately told me, "no throwing things, General" I laughed so hard! Ok. time to go. I hope you have a Tub Thumpin' Thursday!

    Chuck Butler
    EverBank World Markets

    Posted 08-29-2013 12:39 PM by Chuck Butler
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