New RBI Gov. Hits The Ground Running!.
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In This Issue.

* G-20 meeting begins, will Putin get his wish?.

* BOC remains status quo, Riksbank does too.

* U.S. 10-year Treasury hits 2.93%...

* U.S. Jobs data begins to print today.

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

New RBI Gov. Hits The Ground Running!.

Good day. And a Tub Thumpin' Thursday to you! With every day that passes by without an airstrike on Syria by the U.S. the more the calls for tapering of Quantitative Easing (QE) become louder and louder. I still think that the airstrike is in the cards, and I don't say that flippantly. I'm fearful of what unintended consequences will show up after the President gets his way and saves face with an airstrike.

So, with the calls for tapering to begin in 12 days (Fed Heads meet 9/17& 18) or at least an announcement of when it will begin, which to the markets is one in the same, the more the flight to dollars becomes prevalent. That's what's happening this morning, the bias to buy dollars is prevalent, and looks to be pretty set in place. Gold really got whacked yesterday, with the shiny metal selling off to the tune of $25 at one point in the day. And today doesn't look like we can get any wind in the sails of Gold, so it could be another ugly day for the shiny metal.

Yesterday I told you about the new Reserve Bank of India (RBI) Gov. Rajan, beginning to implement his plans to support not only the economy but also the rupee. In his very first briefing as RBI Gov. Mr. Rajan, announced a plan to provide concessional swaps for banks' foreign currency deposits. That's central bank parlance for: Banks can swap their U.S. dollar (USD) liabilities against foreign deposits that earn 3.5% for 3 years. (That's more than 3% less in funding costs than before (6-8%). I like this, folks. it's different, and shows that Rajan is thinking outside of the box! This should provide a lot of liquidity and foreign exchange inflows, which is what the rupee needs badly. And the rupee rallied on the news. This is the first step in what will be many that the RBI announces under Rajan. So, stay tuned, same bat time, same bat channel! But it appears the new RBI Gov has hit the ground running!

Yesterday, the Bank of Canada (BOC) met, and left rates unchanged, and also pretty much left the statement following the announcement the same, saying that, "over time, as conditions normalize a gradual normalization of policy interest rates can also be expected." So, it's the same-o, same-o with the BOC. I realize that they are backed up against a wall with the household balance sheet wreckage going on in Toronto and Vancouver, but they also have the rest of the country to think about. I hope that new BOC President Poloz doesn't forget that! The Canadian dollar / loonie didn't gather any wind in its sails from this meeting, and is flat this morning, as there isn't any pull higher coming from the Aussie dollar (A$) this morning.

Speaking of the A$... After two consecutive days of strong rallies, the A$ is backing off those previous lofty figures that came about after the rallies. It seems that traders and investors are getting sweaty palms and shuffling their feet from nervousness. The nervousness is a direct result of what they fear the Jobs picture in the U.S. is going to look like this week. First we have the ADP jobs report that prints today, and is supposed to be an indication of what the Jobs Jamboree will have in store for us tomorrow. Personally, I would just prefer that we scrapped the Bureau of Labor Statistics (BLS) survey, and go with the ADP report each month. ADP does payroll services for just about every company in the U.S. So. THEY KNOW The REAL NEW HIRES And PEOPLE LET GO! No, birth/ death model, no hedonic adjustments, no book cooking. But that's not going to happen, so we're stuck with the BLS survey.

And what did I tell you about economic data in the U.S. going into the Fed meeting Sept 17 & 18? I told you the data would be good, no matter what! For that's what the Fed wanted to see, so they could feel good about tapering. So, look for good news from the ADP report today, and the Jobs Jamboree tomorrow. But I'll know in my heart of hearts that it's all fabricated and by now I would think you, dear reader, would know that too!

The U.S. data cupboard will also yield Factory Orders data for July, and this report must get past the book cooking police, because I expect for Factory Orders to show a negative result in July. But it will be swept under the rug, don't worry about that, for tomorrow is what the markets are really all about. The Jobs Jamboree.

OK, enough on the U.S. trumped-up data. I can only stomach so much at one time!

The Japanese yen, which for about a month, seemed to have weathered the Abenomics storm, has gotten back on the slippery slope. The Yen touched 100 this morning, and bounced off of the number, but just 3 weeks ago, the yen was 97.37. And if you chart the currency round-up each day, you will have noticed the gradual rise in yen to 100 (remember, yen is a European priced currency, so the higher the price, the less value it has VS the dollar) In a video interview I did with the at the beginning of summer, I said that I thought yen would be 110 by year-end. And then the currency promptly got stronger. But I do believe that strengthening is over now.

Sweden's Riksbank met this morning (for us) and kept rates unchanged, and their easing bias in place. I don't know why the Riksbank keeps haunting the krona with that easing bias, they haven't cut rates in a month of Sundays. But they do, and brother does the easing bias haunt the krona. The markets were attempting to price in a rate hike for the next year, and this decision by the Riksbank to keep their easing bias in place, really threw a spanner in the works for the markets. And the krona gets punished.

Did you see what Fed Head, Kocherlakota, (non-voter) said last night? He said that, "the Fed has NOT applied enough stimulus and that interest rates are artificially high in the context of current inflation." I bet Big Ben Bernanke is counting his lucky stars that Kocherlakota isn't a voting member of the Fed, for he could be a real fly in Big Ben's ointment, when it comes time to vote on whether to begin tapering.

The European Central Bank (ECB) and Bank of England (BOE) are both meeting as my fat fingers type away this morning. I told you on our Tom Terrific Tuesday, that the ECB meeting could be the only one that had some fireworks, in that, ECB President, Draghi, had to resist chest pounding and remain committed to providing the roadwork for the Eurozone economy to continue to gather momentum. Any chest pounding now would be premature.

The euro is up slightly this morning. But ever-so-slightly at that. We could see a volatile day in the currencies, as the news from the G-20 meeting comes to the markets. Recall I told you yesterday that the G-20 members didn't have Syria on the agenda, but the host country's leader, Putin, decided that he wanted G-20 member to talk about Syria. And so they shall! So, any news of Russia either turning down the U.S.'s attempt to get them to join, or deciding to join, will swing the currencies and metals one way or the other.

Getting back to the euro for a minute, the single unit is up slightly this morning on news that European Union president Herman Van Rompuy said that, The existential threat for the Eurozone is over for almost a year now. The Eurozone is in much better shape than a year ago." The markets like to hear that their faith in the Eurozone hasn't been blind-faith.

The U.S. 10-year Treasury is at a recent times high of 2.93%... And darn the luck, the U.S. Treasury has to announce its refinancing needs today, and they'll probably have to issue $21 Billion in 10-year Treasuries that are going to cost more in yield. The cost to finance the debt keeps inching upward folks. I can't believe that the markets aren't taking note of this, and just taking the dollar to the woodshed. But NOOOOOOOO! Apparently, the currency traders feel that the higher yield will attract more investors and support the dollar.

Well, that would be true if. there weren't grave consequences of financing the debt hanging over those higher yields like the Sword of Damocles. The financing costs in Germany are going up too. German 10-year Bunds (Gov bonds) saw their yield rise to 2%, that's a 17-month high..

What to do? What to do? Well, to me, it's an easy solution. Find countries that don't have large debts staring at them down the barrel of a shotgun. Norway, and China, are two that stand out front and center. And the metals (Gold, Silver, Platinum & Palladium) certainly don't have debts or liabilities hanging all over them like a cheap suit! Then there are some additional on the fence countries that don't have much debt to speak of like: Singapore, Sweden, Canada, and then the countries that go back and forth between having debt and little debt like: Australia, Switzerland. and all the Emerging Markets.

And then one more thing before I head to the Big Finish. The U.S. Trade Deficit widened in July, with exports collapsing, and imports from China and Germany pushing the deficits with these countries to record levels. The 2nd QTR upward revision was heavily weighted with the increase in exports that was seen in June. Well, so much for that increase, eh? I still say the 2nd QTR GDP will be below 2%, and this data strengthens that belief!

For What It's Worth. I received a news story from the NY Times that caught my eye. Most of the time I just look at the title and delete it. But yesterday the title, as I said, caught my eye.. And it plays well with the story on that said that ETF outflows in August were largest in history! Yes, investors pulled more than $17 Billion from U.S. listed ETF's in August. OK. here's the NY Times article I talked about above.

"Bill Gross's Pimco Total Return Fund, the world's largest bond fund, lost $41 billion of its assets in the past four months through withdrawals and price losses, according to data from Morningstar Inc on Wednesday.

The Pimco Total Return Fund, which had $7.7 billion in net cash outflows in August alone, has seen its assets shrink by 14 percent to $251 billion at the end of August from $292 billion at the end of April, Morningstar added.

Investors have pulled cash out of bond funds this year as rising interest rates have made fixed-income securities vulnerable to price losses. Gross and his co-chief investment officer at Pimco, Mohamed El-Erian, are watched closely because they have made money by anticipating big moves in the economy and interest rates way before other investors."

Chuck again. Recall last week I was asking where all the money was going? So, add ETF's and bond funds to the list of assets seeing money leaving the coiffures. Mattresses and cookie jars and pickle jars buried in the back yard, seem to be the new destinations.

To recap. The cries for tapering just keep getting louder and louder, which is putting the bias to buy dollars front and center. The G-20 meeting has begun, and if Russian President gets his way, a discussion of Syria will take place. I look for currency and metals volatility today & tomorrow given the Syria stuff. Riksbank leaves rates unchanged and their easing bias in place, while the Bank of Canada stays status quo.

Currencies today 9/5/13. American Style: A$ .9135, kiwi .7875, C$ .9540, euro 1.3210, sterling 1.5640, Swiss $1.0655, . European Style: rand 10.29, krone 6.0970, SEK 6.6440, forint 228.80, zloty 3.2490, koruna 19.4910, RUB 33.40, yen 100, sing 1.2770, HKD 7.7555, INR 66.10, China 6.1696, pesos 13.40, BRL 2.3590, Dollar Index 82.20, Oil $107.91, 10-year 2.93%, Silver $23.55, Platinum $1,495.70, Palladium $695.20, and Gold.. $1,396.54

That's it for today. Cardinals finally win in the 16th inning last night. Rookie slugger, Matt Adams hit a homer in the 14th and again in the 16th inning. I just mentioned to Mike Meyer that the sun keeps moving south again. This is always a sad time for me, because I like it to stay where it was a month ago! And with it moving south, it just means fall, then winter is coming eventually. UGH! I've said it before and I'll say it again, I'm like Jimmy Buffett when it comes to I've gotta go where it's warm! Edwin Starr's song: War was just playing on the IPod, how appropriate given the beating of the war drums going on. Crosby and Nash are singing now, and asking if I am tired and angry that my point has been missed. and I say "YES"! My point is always being missed! Hey, who knew their song could be interactive? HAHAHAHAHA! I hope you all have a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets

Posted 09-05-2013 12:57 PM by Chuck Butler
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