Looking For The Two Cake Donuts Cure
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In This Issue.

* Gold flip-flops all day.

* It's all about the Debt Ceiling.

* A$ puts the rate cut calls behind it.

* U.S. ISM drops, along with all components.

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

Looking For The Two Cake Donuts Cure.

Good day. And a Happy Friday to one and all! A great start for my beloved Cardinals, now if they can just keep it going! The two cake donut cure was still working its magic yesterday, as I finally had a day that wasn't filled with problems. I'm hoping to get a hold of a couple more cake donuts this morning, because as I've told you, my 40th High School Reunion is tonight, and I want to have fun! It's difficult for me to believe that it's been 40 years since I will have seen some of these people. There were 1,000 kids in my freshman class, but "only" 550 graduated, I can't pretend to have known all of those people! But this should be good. I'm looking forward to it!

Well, Gold was looking for a two cake donut (TCD) cure yesterday too, as the shiny metal flip flopped from negative to positive at least one-half dozen times while I was in the office. It was like watching someone from the neighborhood that I grew up in attempting to make it big in the world, only to get slapped right back down where they belonged. Gold would pop up by $5 and then get slapped right back down to a negative number. It's sitting in negative waters this morning, but the shiny metal appears to be ready to experience another day of back and forth trading.

The U.S. dollar continues to drift lower. I don't know if you noticed it or not in the currency roundup yesterday, but the Dollar Index slipped back below 80. I'm not one to hang my hat on the Dollar Index moves as an indicator of dollar strength or weakness, but the markets seem to think of it as the Cat's Meow, so, I have to follow it. The euro, which happens to be the major component of the Dollar Index is down a small amount this morning, but still above 1.36. One of my chartist friends tells me that the euro needs to trade & stay above 1.3620 to really have a chance to continue this move higher. The single unit has reached 1.3620 a couple of times in the past couple of days, but has failed to hold that level.

Well, it's Day 4 of the PS. (partial shutdown). The way the media gets all Chicken Little on us regarding this, it reminds me of the nightly updates from Ted Koppel that eventually turned into the show Nightline. American Held Hostage. Day 4. So, the media is getting all Chicken Little on us, but the markets aren't buying into the hype right now, as Treasuries remain around 2.60% and the dollar, as I said above, is just drifting downward, not really riding on the slippery slope or soaring higher on the Safe Haven trades.

Did you see the "dire warnings" from the IMF and U.S. Treasury on the consequences of not raising the Debt Ceiling? OK. Let's all calm down a bit here! Yes, it would not be a good thing to not raise the Debt Ceiling, now. But will it be a good thing that we did so now, in 10 years? I keep harping about how this is what happens when you let your deficit spending go unchecked for over a decade, and your debt is now so out of whack, that some people want to do something about it, but their hands are tied, because, if they do, the whole house of cards will come crumbling, tumbling, stumbling down.

The dollar has lost about 1% in value to the major currencies this week, and it's all been about the budget impasse leading to the PS. So, what happens if these, OK this is where I would have inserted words like: knucklehead, or blockhead, but in my new gentler, kinder Chuck, I won't go there any more. Besides, I doubt if I did type something like that it would get through the "review". So. let me try once again to do this. So, what happens if our lawmakers come to an agreement, on the budget impasse this weekend, and the PS ends come Monday, it'll be alright, come Monday, I'll be holding you tight. No wait! Come Monday should that happen, and I doubt seriously that it will, I would think you could see the 1% losses reversed pretty quickly.

But then the markets' attention would quickly shift to the Debt Ceiling. and we could see the dollar go right back on the selling blocks. But, if no Budget impasse can be solved this weekend, the drifting lower and lower for the dollar will continue. And that's what I see going on, for I don't see one inch of compromise right now.

My friend, Dennis Miller, had a quote from the Casey Research economist, Terry Coxon, in his weekly letter yesterday. Terry is talking about the Fed creating money out of thin air, and what that will eventually do to inflation. Let's listen in to Terry Coxon.

""When price inflation starts to become obvious, more and more people will behave as though they are playing a game of Old Maid. They'll try to get rid of depreciating dollars. And that effort-to get rid of dollars before they lose even more value-will make inflation even worse. The players who diversified out of dollars early will win the game."

OK. So notice that he says "the players who diversified out of dollars early will win the game". I wish I could say stuff like that! But, in the end, I guess I get to sleep better, just telling people that allocating a portion of your investment portfolio outside of the dollar, will reduce the overall risk of your portfolio and give you an opportunity to recover your lost purchasing power should the dollar depreciate.

The BLS confirmed yesterday that they will not be printing the Jobs report today. Oh Shoot! And I was so looking forward to it! NOT! What will the markets do without a Jobs Jamboree the first Friday of the month? I guess the big swingers in NY will head to the Hamptons early today.

In Australia overnight, the Aussie dollar (A$) continues to get pushed higher on the thoughts that the Reserve Bank of Australia (RBA) has dropped their rate cut bias. I've talked at length about this recently, and even told you about the research people at RBC telling their customers that the A$'s rise and calls for no more rate cuts are premature, and that they still think another rate cut of 25 Basis Points (1/4%) will come in December. I call this a good two-way market, folks. You've got a good portion of people that believe the next move by the RBA is a rate hike, and others thinking there's another rate cut coming.

I think we just need to watch the economic data that prints in Australia. But for now, the rate hike campers are winning the tug-o-war with the A$, and moving it higher..

China has been on their Golden Week Holiday this week, and therefore the renminbi / yuan hasn't moved from the 6.1480 level. Yesterday, I told you about the Chinese Services Index rising, so we were still getting economic data reports while everything in China is shutdown.. I would think that when they return from their week-long holiday (Hey! Wouldn't that be cool to have a 1-week paid holiday?) that they will not like what's going on in the U.S. with the PS and the looming Debt Ceiling talks. I have this feeling that the Chinese will go into "lockdown mode" on their currency, and have a wait-n-see attitude toward any further currency movement.

The U.S. data cupboard did squeeze through a report yesterday. The ISM non-manufacturing Index for September showed some rot on the vine folks. First we had the ISM Manufacturing Index drop, and now the Services Index (non-manufacturing) index fell in September too. The Services Index fell to 54.4 (forecast was 57) from 58.6 in August.

On the bright side, one could point to the 3rd QTR and say, that as a whole, both manufacturing and non-manufacturing (Services) showed that economic growth was moving in the right direction. But then, on the dark side, I would point out that recent stuff shows us weakness in the past month in: falling consumer confidence, slower housing stuff, and slower car sales.

The other thing in the report that wasn't so " Happy Days" was the Employment Index component fell to 52.7 from 57 in August. Along with the Employment Index falling, the components of New Orders, Business Activity a and supplier deliveries all dropped too.

Sure, maybe the thought that the Fed was thought to be announcing that they were beginning a tapering of Quantitative Easing, slowed things down. But that all went to the side of the road on the 18th of September, so there was plenty of time to recover in the month.

Ok. So, I touched on this above, I thought it best to come back to it, and not just leave it hanging out there. The IMF and U.S. Treasury dire warnings about not raising the Debt Ceiling. Here's the U.S. Treasury Sec., of whom I believe he has a knack for drama. "A failure of the U.S. to pay its obligations if the debt limit is not raised would be unprecedented and has the potential to be catastrophic. Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, and the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse" - Jack Lew, U.S. Treasury Sec.

My question to all this drama would be where have you been all year? I've been pointing to this for about a year now. I originally thought we would reach the end in late spring, then late summer. Of course I wasn't aware that the U.S. Treasury Sec. would implement extraordinary measures to keep from hitting the debt ceiling. But the question remains the same, did the markets and media just think that as long as we didn't talk about it, the Debt Ceiling would go away?

Make no mistake folks. This is going to get ugly, but. in the end, the Debt Ceiling will be raised, the can kicked down the road some more, and the dollar will be allowed to go on living, albeit on life machines, but living.

Before I head to the Big Finish. I thought this to be interesting. the WSJ is reporting that "More than 5,000 brokers were still licensed to sell securities earlier this year after working for one or more firms that regulators expelled between 2005 and 2012." Hmmm. Lots of things going through my mind right now on this story. But I'll keep them to myself here.

For What It's Worth. James Grant has been a fave of both mine and the Big Boss Frank Trotter going back to our Mark Twain Bank days. James Grant's newsletter, Grant's Interest Rate Observer, is a must read for me each month, and I rarely get to use anything he says, because his letter is a subscriber based letter. But I found an interview with him on the moneynews.com site. James Grant is talking about Gold. Let's listen in.

"Gold is the legacy monetary asset. It was there before they printed paper. The price is the reciprocal of the world's faith in central bankers. The world ought to have much less faith in central bankers. As that proper distrust grows, the gold price will appreciate. I think gold is cheap at this price."

Chuck again.. I like that. the price of Gold is the reciprocal of the world's faith in central bankers. A very interesting take, I must say!

OK. I've got two For What It's Worth stories for today. Ty Keough sent me this one, and I forgot to deal with it yesterday, so here it is today. It's a report that appeared on Reuters.com and is about Narayana Kocherlakota, president of the Minneapolis Fed who told Reuters the other day that, "the U.S. Central Bank should only slow its $85 Billion-a-month bond buying program if it loses effectiveness, or if a smaller program would work better. Whoever takes over next year as chair of the U.S. Central Bank must show the world the Federal Reserve will do whatever it takes to boost employment and resist the inevitable calls to pare stimulus. Reducing the program for any other reason would send a message that the Fed is comfortable with, or powerless to change, the slow decline in unemployment." - Minneapolis Fed President, Kocherlakota.

Chuck again. OK, folks, you heard it here. This Fed Head doesn't think tapering should begin at any time in the near future. Yesterday, I told you that Chicago Fed President Evans said that he didn't believe tapering would start until sometime in 2014. More and more these Fed Heads are beginning to fall right into the scenario I painted for them. that I knew in my heart of hearts would be the result of this stimulus. So. we've got this all to look forward to!

To recap. American Held Hostage Day 4. But the real nut to crack will be the Debt Ceiling, get ready for that drama. Gold spent the day flip flopping from gains to losses all day yesterday, and is seeing some slight slippage this morning. The dollar continues to drift lower, the dollar index has fallen below 80, and the Aussie dollar continues to get bought on the thought that the next move from the RBA will be a rate hike instead of a rate cut.

Currencies today 10/4/13. American Style: rand 10.00, krone 5.9675, SEK 6.3670, forint 218.45, zloty 3.0910, koruna 18.7740, RUB 32.16, yen 97.15, sing 1.2465, HKD 7.7540, INR 61.68, China 6.1480, pesos 13.13, BRL 2.2060, Dollar Index 79.92, Oil $103.58, 10-year 2.62%, Silver $21.65, Platinum $1.377.30, Palladium $702.13, and Gold. $1,316.49. And all this talk about the Debt Ceiling has me wanting to take a peek at the U.S. Debt Clock, and you can too by clicking here: http://www.usdebtclock.org/index.html

That's it for today. Well the raindrops that I drove through on my way to work yesterday, gave way to sunshine, and a beautiful day for Game 1 of the NLDS here in St. Louis. I woke up from my afternoon nap in time to go outside, and watch the game on the TV, while enjoying the beautiful day! The Jacksonville Jaguars are in town this weekend to play our Rams. The "Jags" are so bad, that we don't even have the Jacksonville crowd coming up here for the game, nor are they willing to make any bets on the game, not that I would condone that in the office! HA! And congrats to our Blues who won their season opener last night 4-2. Cardinals play game 2 today at noon. And now I'm off to see how old all my old classmates have gotten and look! HA! I always tell my beautiful bride that I still look the same, (well, plus a lot of weight!) and she laughs so hard! Let's make this a Fantastico Friday, OK?

Chuck Butler
EverBank World Markets

Posted 10-04-2013 12:34 PM by Chuck Butler
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