Central Bankers Play Whack-a-Currency.
Daily Pfennig

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In This Issue.

* Currencies & metals get dissed .

* Dollar rallies by default!.

* Gold slips on dollar strength .

* U.S. Retail Sales today .

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

Central Bankers Play Whack-a-Currency.

Good day. And a Tom Terrific Tuesday to you! Writing from home today, as the stomach problems continue to take their toll on me. I went home yesterday morning, after hitting the "send" button, and collapsed in my recliner only to wake up 5 hours later when I received a phone call. I probably wouldn't have woken up then if not for the phone call. Yes, I know how to turn it off! But that's the deal, if I'm home, and not on vacation, I'll take calls. I woke up this morning, to more fun than a barrel of monkeys, so I'm staying home again.

Well, after sleeping through most of the trading action yesterday, I had to catch up in the afternoon, and it appears that Central Bankers around the world were not feeling so peachy about the recent strength of their respective currencies, and so they decided to verbally assault them, and the markets reacted negatively toward those currencies, thus pushing the dollar up on the day. But, the dollar didn't rise because of its own good news, data, or situation. no, it gained by default, because Central Bankers in Australia, New Zealand, and the Eurozone, all got a little jiggy with the recent strength of their currencies, and decided to do something about it. It all reminded me of that whack-a-mole arcade game. These guys were playing whack-a-currency!

Right out of the starters blocks yesterday, it was the French Industry Minister, Montebourg, hitting the euro where the sun doesn't shine, saying, " The euro doesn't belong to the ECB, the euro doesn't belong to the Germans. Everyone agrees that the euro is too strong." Well, bust my buttons! I can't believe the markets reacted so violently to these comments, it was just the French Industry Minister, I don't mean to say that flippantly, or reduce his status in any way, but let's get real here. Now if someone that could do something about the euro's strength, should they actually feel the euro is too strong, which in my opinion it is not, then I would think the markets would react. So, hopefully you get my point here. Apparently, the markets have become super-sensitive to politicians' remarks about currencies..

So, while the elephant in the room has been talked about, I might as well give you my Pfennig's worth. I said above that it's NOT my opinion that the euro is too strong. When it was 1.60, in 2008, well, you could make that argument. But to me, the euro is closer to fair value than too strong.. And again, the French, and any other Eurozone member country that wants to complain about the euro strength, should take it up with the U.S. for allowing the dollar to depreciate so much against the offset currency to the dollar!

Then we had Reserve Bank of Australia (RBA) Gov. Stevens drop a bomb on the Aussie dollar (A$), You dropped a bomb on me, baby, you dropped a bomb on me. Here's the skinny. Stevens was going along just fine, showing concern about the housing market, and suggesting that the RBA would stay on the sidelines (for rate decisions) for the next few months, and then it happened. Stevens said, "The A$ is likely to be materially lower at some point".. And the markets took it upon themselves to make that "at some point" NOW!

Again, I don't get what he's trying to accomplish here folks, other than to play in the currency wars, and say, "anything you say to weaken your currency, I can say it better!" The games people play now, every night and every day now, never meaning what they say now, never saying what they mean..

And finally, our old friend, (NOT!) Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, decided to speak ahead of the scheduled RBNZ meeting this week, I guess to get the dissing of kiwi out of the way! Wheeler said, "The high exchange rate will diminish inflation pressures and that may mean, in terms of our inflation objectives, that it gives us some degree of freedom in respect of the timing of future official cash rate increases."

That's Central Bank parlance for: Go ahead and push kiwi higher, and that will reduce their need to hike rates. See! I've always told you that a strong currency goes a long way toward helping in the fight against inflation. Wheeler knows that, and is using it to talk down the imminent rate hikes in the first Quarter of 2014.. Oh, he'll still hike rates then, but what he gets out of this talk, is the markets not pushing the envelope in kiwi strength ahead of the rate hike.

The Chinese renminbi / yuan saw the largest move downward by the Central Bank in more than two weeks last night. I mark this down as simply another attempt by the Chinese Central Bank to tell the markets that the renminbi is not a ONE-WAY Street to appreciation. I told you last week that the forwards were getting all out of whack again, which is nothing more than speculation that the renminbi will be that much stronger in the future. I just don't get these traders that push the envelope in the renminbi forwards . The renminbi / yuan has gained 2.3% this year, and will probably gain no more than 3% next year. So why push the forward rate up 5%? Oh well. the economic recovery in China is still gaining traction, and therefore, I see the renminbi / yuan continuing to appreciate, albeit at a snail's pace, but with these circuit breakers set off by the Central Bank, always hanging around.

The Indian rupee, which has been on a nice recovery path for the past month, dropped back overnight ahead of the Reserve Bank of India (RBI) meeting this week. I think it's simply a defensive measure by traders in that they aren't sure the RBI will hike rates this week. But, I think the RBI will hike rates, so what are they waiting for? HA! Yes, I do believe rates will go higher in India, and that should allow the rupee to get back on the rally tracks.

Gold's price dropped yesterday with all the dollar strength that came from the Central Bankers dissing their currencies. I doubt that the "words" will keep those currencies down for too long, which means the dollar should get right back to losing ground, and that will most likely show up in the Gold price rising. But then, that's just my opinion, and I could be wrong! But Gold will have to really skyrocket the rest of this year, to keep from posting its first yearly drop in 13 years! I say, OK. 1 in 13 is not too shabby!

The U.S. data cupboard will continue to get a workout today, with Retail Sales, PPI (wholesale inflation), the S&P/ CaseShiller Home Price Index to print. Yesterday, we saw Industrial Production print stronger in September than forecast (.6% VS .4%) . But before you go out and do a little gangnam style dancing in the streets, you might want to look under the hood, like I did. For when I did, I found that most of the gain came from the very volatile utilities component, while the more stable Manufacturing component only gained .1%...

Capacity Utilization saw an increase to 78.3% from 77.9% in September. I find more out of these two pieces of data regarding the pulse of the U.S. economy than I do most of the other stuff, and for this month, it looks mixed, which pretty much describes the U.S. economy to a "T"!

For What it's Worth. OK. I was searching and searching this morning for something to go here, and I came across so many articles that would fit. But I decided on this one that I found on Ed Steer's letter, and was originally posted at goldswitzerland.com. This is Egon von Greyerz of whom I'm quoted a few times before. interesting take on U.S. debt.

"There is a ridiculous amount of time spent on what the Fed will do or won't do or analyzing the latest economic figures. Very few people use their own brain to figure out the obvious. And the obvious is that debt which has been growing exponentially in the last 40 years, started its parabolic phase in 2006 when Bernanke became chairman of the Fed. So we don't have to ask what central banks will do. Because it is guaranteed that they will soon start unlimited money printing to complete the debt parabola.

That means we are now starting the hyperinflationary phase in the USA and many other countries. And this will all start in 2014. What will be the trigger? The answer is simple - the fall of the US dollar.

Hyperinflation is a currency event. It does not arise as a result of increase in demand but as the inevitable consequence of a collapsing currency. When a country for an extended period lives above its means and prints money which it can never pay back, the rest of the world will punish the country and its currency. It took the US over 200 years to reach a debt of US$8 trillion. Since Bernanke became chairman of the Fed in 2006, US debt has more than doubled to $17 trillion. That is an incredible 'achievement' and the beginning of the parabolic rise of US debt not by tens of trillions but by 100 of trillions of dollars. This is no different to the Weimar Republic or Zimbabwe and a completely natural consequence of what is happening now."

Chuck again. Pretty scary, eh? Well, we've heard warnings about hyperinflation coming from all the money printing of Quantitative Easing / QE, but yet, while we do have inflation that keeps rising, it's certainly not on a path to Hyperinflation is it? But that doesn't mean it won't, or can't come along, and therefore, Egon von Greyerz would tell you that to protect your wealth from this hyperinflation you would need to own Gold.

To recap. The dollar selling ended abruptly yesterday with words from the Eurozone, Australia and New Zealand, who all took shots at their respective currency's strength, and caused a brief sell off. This selling caused dollar strength which spilled over to the metals, which saw Gold lose ground. Retail Sales is the Big Kahuna data print today. The BHI says it will be disappointing.

Currencies today 10/29/13. American Style: A$ .9505, kiwi .8260, C$ .9590, euro 1.3765, sterling 1.6085, Swiss $1.1140, . European Style: rand 9.8770, krone 5.9070, SEK 6.3720, forint 212.85, zloty 3.0430, koruna 18.7240, RUB 32.01, yen 97.70, sing 1.24, HKD 7.7535, INR 61.39, China (sorry I don't have access to that price from home), peso 12.91, BRL 2.1830, Dollar Index 79.46, Oil $98.18, 10-year 2.50%, Silver $22.42, Platinum $1,464.70, Palladium $743.30, and Gold. $1,346.84

That's it for today. Well, my beloved Cardinals are fading fast in the World Series, who would've thought they would lose 2 of 3 games at home? They'll hand the ball to their rookie sensation pitcher tomorrow night in hopes they can stay alive in the Series. The bats have gone south for the winter it appears, as we haven't hit & scored runs like we did all year, in any of the games. thanks to those who sent along notes of good wishes for me yesterday. This is just something that I have to deal with every day, and some days are worse than others. I received an invite to the game last night, but I had to turn it down, and I guess I'm glad I did, given the outcome. I'm a HUGE fan of these teams that I talk about, but to me, if I go to the hassle of the traffic, the parking, the crowds, and the cost to go to these games, I feel that they had better win! I know, I know, It's all about me! HA! Time go. I hope you have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 10-29-2013 1:41 PM by Chuck Butler