No Taper, Markets Go Crazy.
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In This Issue.

* Big Ben keeps his word.

* Gold soars $65

* Euros & Aussie up 2-cents!

* Norges Bank turns hawkish.

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

No Taper, Markets Go Crazy.

Good day. And a Tub Thumpin' Thursday to you! Well, the risk that I kept reminding you about regarding the Fed not doing anything, came to reality yesterday afternoon. Aaron Stevenson, sent me a text that read, "are you seeing this". Well, I wasn't seeing anything but the underside of my eyelid at that moment, but waking up from the vibrating phone in my shirt pocket, and answered, "what?". He replied, "no taper, markets are going crazy". And there you have the whole story of what happened yesterday. No taper, markets are going crazy.

As I told you a couple of weeks ago, "should Big Ben Bernanke follow his words, that the future of Quantitative Easing / QE, would depend on the incoming economic data, then there would be no tapering, and that would send Gold soaring". Well, that's exactly what happened. Big Ben decided to follow his words. Kudos to him! (I can't believe I actually said that, but I did. ) How else can Big Ben get the markets to believe him if he doesn't follow his own words? As I've chronicled here in the Pfennig, the economic data just wasn't on a path that would give Big Ben a warm and fuzzy about tapering. For Tapering is akin to taking your foot off the gas, what happens to a car when you take your foot off the gas? It slows down.

The signs were all there that he wouldn't do anything, but I was convinced that Big Ben wanted to go out with a bang. Of course he still has 6 weeks from now to accomplish that, but right here, right now, that isn't playing in the markets. What is playing is that the punch bowl has been brought back to the risk assets party, and so we're going to party like it's 1999! (there you go Jen. a Prince song, 1st time ever, and last I might add!)

Gold isn't the only asset class that is in the conga line at the party. There's the non-U.S. dollar currencies, and Oil, and looky there, the stock jockeys have joined the conga line! The price of Oil shot up $2 on the no-taper news. The currencies were cooking with gas, which goes back to the last couple of days where they were well bid ahead of the FOMC meeting. The currency boys & girls seemed to have this whole thing right from the get-go. After the initial sell off of the currencies in May when the first mention of tapering was made, the currency traders just didn't think Big Ben had the intestinal fortitude to take his foot off the gas.

But in reality it wasn't a lack of intestinal fortitude, it was simply taking a page out of the book by the Captain in Cool Hand Luke. What we have here is a failure to communicate. Go back to the original comment by Big Ben. He said that "the Fed was thinking about tapering QE". I recall me going bananas the next morning, about how he DIDN'T SAY HE WAS GOING TO TAPER! And I didn't understand why the currencies and metals were getting sold based on what Big Ben had said.. But the markets heard differently, and so we've been on this path toward yesterday's FOMC meeting.

In other words. All This Talk About Tapering, Should Have Never Taken Place! I'm sure Big Ben was doing a "Whoops, did I say that out loud?" song and dance when he got back to his office after that initial tapering talk.

Yes, I got dragged into the trap. In my heart of hearts, I didn't see how Big Ben could taper, given the economy, which I continually said that the Fed was being too optimistic about. But now. I can see clearly now, the rain is gone.

So, for those of you not wanting to wait until you get to the currency roundup below, the euro is trading at 1.3550, more than 2 full cents higher than yesterday morning. Add 2 full cents to the Aussie dollar / A$ too. and so on down the line. The punch bowl has been brought back to the risk assets party (I know I already said that, but I said it again for emphasis!) and now the currencies get to party.

So, yesterday, when I woke up from the vibrating phone in my shirt pocket, I turned on the TV to a financial news station to get their take, which I always, salivate ahead of time, because I know I'll get to make fun of something they say. Well, I won't make fun of this, but I will question it, as I'm known to do. A talking head on one of the stations said, "Well, no taper this time, but eventually this will all have to come to an end". And I replied to the TV, of which my granddaughter, Delaney Grace, always tells me, "they can't hear you, General". but I do it anyway. I said to the guy on TV. "And you know this because? You know that it will have to end? What gives you that "expert knowledge" to say that? Maybe, just maybe, this will go on forever!"

I mean, ask the Japanese about how long an economic malaise can last! And ask them how they feel about those initial stimulus and bond buying programs that began 20 years ago, now. Once you start these programs, they become like a drug that you can't just go cold turkey on. So. as you know, I said that Fed Heads would begin tapering only to find out they shouldn't have done so, and start it (bond buying / QE) up again. Well, they took out the beginning tapering, and just kept the bond buying / QE going. and going. like the Energizer Bunny.

OK. Let's talk about something other than the Fed. Big Ben. and Tapering. Well, I told you yesterday that the Norges Bank in Norway was going to meet today, and with the recent bump up to the top side of the inflation target (2.5%), that we could very well see / hear the Norges Bank Gov. Olsen, remove the easing bias, and begin to talk about rate hikes. And guess what happened? Exactly how thought it would happen! In fact the Norges Bank delivered a very hawkish statement, and now it appears that by June of next year, interest rates in Norway could be higher, if not sooner, given the performance of inflation recently. All that, is good for the krone, folks, which has been in need of some good news.

And the Emerging Markets Currencies, which had also been in need of warm and fuzzy news, took the no taper news and ran with it all the way to the bank. I told you all about how the IMF's head had sent messages to Big Ben asking him to think about the rest of the world, before taking his foot off the gas. The rest of the world here, were the Emerging Markets.

As I said above, Gold soared on the news yesterday, up $65. I sure hope the price manipulators got caught short and it hurt them so bad that they are thinking of giving up the ghost on their shorts positions!

So, that brings me to this question that everyone should be asking. Can we expect for yesterday's price action to continue in the risk assets? Certainly not. These moves were exceptional, and don't come along every day. But what it does, in my opinion, and I could be wrong, is form a higher base from which future moves can be made. I think that the metals and currencies can bet their sweet bippie that from here on out, their fortunes every day will be tied to the economic data here in the U.S. Because if Big Ben did anything yesterday, he enforced his words, and showed the markets he's a man of his word. So, we can go back to the initial statement from Big Ben. "the future of Quantitative Easing depends on economic data".

This week I've highlighted some of the stuff that I said in the Review & Focus letters from 2002. The reason I did this, was to highlight that not much has changed in 11 years, the numbers just keep getting bigger and bigger. So, in this light, I thought one more from December 2002 played well here in talking about the U.S. economy. Here's what I had to say in December 2002. "There are a number of questions hanging over the U.S. economy right now, and even though there are just as many hanging over the German economy, the market seems to hold the U.S. economy to a higher standard. Most of the bad news from the German economy seems to be discounted, and any bad news coming from the U.S. economy seems to get highlighted, which the dollar acting as the markets' piñata!" - Chuck December 2002

The U.S. data cupboard has a few things for us today to go through. The Weekly Initial Jobless Claims, which you may recall I pointed out last week that 2 states, (California and Nevada) had failed to file claims the week before, so this week's data should be caught up. Existing Home Sales for August, and the Leading Index data. And this will be it for data this week, as the data cupboard gets emptied out, and cleaned up before being restocked for next week.

And before I head to the Big Finish. Did you see where Gold began to jump higher minutes before the official announcement of no tapering yesterday? So, who got leaked the news? Doesn't this stuff just get under your skin? It does mine! I don't like it when someone knows "ahead of time" something that will move markets. It just ticks me off!

For What It's Worth. A long time reader sent this story to me from the NY Times. It's title is: Congressional Budget Office Predicts Unsustainable Debt. OK, I'll take the bait on that! Of course you knew I would! So, let's listen in to the CBO.

"As the White House and Congress careen toward another fiscal showdown, the nonpartisan Congressional Budget Office warned on Tuesday that President Obama and lawmakers have been cutting the wrong kind of federal spending as they try to avoid the unsustainable buildup of debt that is projected in the coming decades.

Annual federal deficits will continue to fall in the short term, the budget office reported in its yearly long-term outlook, because of the recent spending cuts in military and domestic programs and rising tax collections in a recovering economy. The report projected the deficit in 2015 to be equal to 2.1 percent of the economy's output, or just one-fifth of the peak shortfall at the height of the recession in 2009.

But starting in 2016, deficits are projected to rise again as more baby boomers begin drawing from Medicare, Medicaid and Social Security - the fast-growing entitlement programs, which Democrats and Republicans cannot agree on how to rein in."

Chuck again. Yes, those darn Unfunded Liabilities that I point out at every presentation that I make are scary folks. And they'll just keep getting scarier and scarier. As baby boomers like me, begin to get close to retirement age.

To recap. No Taper, Markets Go Crazy. That's describes what happened yesterday in a nutshell. Chuck thinks that Big Ben had to show the markets that he was a man of his words, and that's why he didn't begin to taper QE yesterday.. Gold soared $65 on the news, and the usual suspects in currencies are stronger by 2-full cents. Norges Bank sounds hawkish, changing their easing bias, and all the risk assets have joined the conga line at the party.

Currencies today 9/19/13. American Style: A$ .9515, kiwi .8420, C$ .9805, euro 1.3555, sterling 1.6090, Swiss $1.0995, . European Style: rand 9.6305, krone 5.7730, SEK 6.3120, forint 218.05, zloty 3.0845, koruna 18.9920, RUB 31.60, yen 98.85, sing 1.2440, HKD 7.7535, INR 61.91, China 6.15570, pesos 12.59, BRL 2.1845, Dollar Index 80.12, Oil $108.93, 10-year 2.71% (the bond bubble avoids another pin in the room!) Silver $22.97, Platinum $1,470.42, Palladium $720.80, and Gold. $1,367.01

That's it for today. I'm really dragging the line this morning, not that you could tell that when I was writing this morning, as it seemed I was going in all directions! UGH! So, thanks for sticking through it. I'm ready to put my head down on the desk and sleep! But, that's not going to happen, so forgetaboutit Chuck! Little Braden Charles was at the house yesterday, and does love for me to put music on the stereo so he can "dance". So darn cute, and funny! Everett isn't so much a "dancer" but Delaney Grace is. Cardinals need to send a thank you card to the San Diego Padres for beating the Pirates! Had to stop and sing along with Chicago.. Hard Habit To Break. one of my fave Chicago songs. Now go out and have a Tub Thumpin' Thursday like Gold and the currencies are enjoying!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 09-19-2013 1:41 PM by Chuck Butler
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