China Gains 17% Of Global Trade in Renminbi!
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In This Issue.

* Dollar rally fades to being the week.

* RBA meets tonight, and ECB on Thursday.

* U.S. Eurozone & Canadian manufacturing jumps!.

* Chuck begins to list reasons for Gold.

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

China Gains 17% Of Global Trade in Renminbi!

Good day. And a Marvelous Monday to you! Well, my beloved Missouri Tigers got back on the winning tracks on Saturday, but the Rams found a way to lose once again. UGH! The weather here in St. Louis was chilly but sunny, and the sun is a rarity in November, with steel gray days the norm, so we had a treat! It warmed up enough for me to fire up the Big Green Egg yesterday, so that always puts me in a good mood!

The dollar rally that was well in place on Friday, carried out through the end of the week. The dollar rally began with the FOMC so-called hawkish statement, then received some support from the weak inflation data from the Eurozone, and then a stronger than expected ISM Manufacturing Index. So, let's start there, and begin to work our way through everything today.

Well, it appears that China wasn't the only country to print a stronger ISM (manufacturing ) Index. The U.S. came in stronger than expected at 56.4, and Canada came in stronger than expected too at 55.6. First the U.S. the ISM was boosted by resilient motor vehicle sales (cars had to be built!) and the recovery in housing (things for the homes have to be manufactured!) So, that was good. the other thing to think about, was that obviously, the disruptions in Washington D.C. didn't slow down the country's manufacturing! And let's not forget that the dollar HAD been on the slippery slope from August until last week, so the weaker dollar sure played a big part of the manufacturing recovery, for exports of those goods were more competitive, price wise.

Canada's Manufacturing Index hit its highest level in two and one-half years! All 5 components to the index contributed to the improvement in October. So, it appears that the global economy is manufacturing at a strong pace, but then, the three we've talked about in the past week, have all had their currencies either weakened recently, or held back like in the case of China.

This morning, the currencies appear to be attempting to rebound, with the Big Dog euro in the lead, and the usual suspects following in line behind the Big Dog. The euro received a boost after hitting a 6-week low on Friday, from a stronger than expected Manufacturing report for the Eurozone. The European Central Bank (ECB) will meet this week (Thursday), and while I don't expect any rate move from the ECB, I do expect them to mention the strong euro (obviously not as strong as early last week!) , and the weak inflation data. That will crack open the door to a rate cut either before the end of the year, or early next year, and any cracking open of the rate cut door, will not help the euro, folks. So, for the euro's sake, I hope that ECB President, Draghi, declines from cracking open any doors!

The Reserve Bank of Australia (RBA) will also meet this week, actually tonight. The RBA will go into the meeting knowing that September Retail Sales printed much better than expected, coming in at +.8% (+.4% was expected), and that last week Consumer Confidence was very strong. I would have to think that pushes the rate cut fears that have been tugging at the Aussie dollar (A$) every time the currency pushes higher. So, as I've said many times in the past. I don't expect the RBA to cut rates any more in this rate cut cycle. But you won't hear the RBA mutter those words or even dare to put them in writing, for that would be giving a green light to the markets to mark up the A$, which is something the RBA is fearful of, which is why they live with house prices rising 1.9% in the 3rd QTR, and refuse to hike rates.

Heading North from Australia, the Chinese continued to weaken the renminbi overnight, the Gov't here is really attempting to show the markets who's in charge of pushing the renminbi / yuan envelope. Hey! They might as well do it while they can, for when they drop their pet to a basket of currencies and allow the renminbi / yuan to float, they'll no longer have a "fixing" each day to set the currency's level. Then they'll have to resort to what's called a "dirty float", which is what the rest of the world's central banks use to verbally and monetary policy direct their respective currency's value. But in the end the markets choose the value.

Speaking of China. You know. It wasn't that long ago that China's percent of global trade in renminbi was zero. But get this, you know all those currency swap agreements that I've been talking about for the past 4 years? Well, they generated 17% of the global trade last year! That's right folks, 17% of the global trade is now done in renminbi! Now, do those swap agreements begin to turn the light bulb over your head now that you hear that? And that percentage will only grow, as more trade partners have signed swap agreements in the past few months! 17% of global trade in renminbi. That's 17% less global trade in U.S. dollars, folks. That also means its 17% less U.S. dollar reserves that Central Banks need to hold.

And why has the renminbi / yuan grown so quickly? Ahhh grasshopper, it's all about the U.S. accumulation of massive debt, and what they'll have to eventually do to correct their mess. The Debt is the problem, as I've explained here for many years, and instead of getting better, it has only gotten worse. That's why I was glad to see a Fed Head, and one that will be voting member next year, speak up about the debt, and what it's doing to us. Here's Dallas Fed Reserve president, Richard Fisher.

"I'm not a proponent of increasing government spending without restraint. The excessively over-indebted U.S. Gov't has, as mentioned, been hog-tied, prevented from providing stimulus. It has thus played a counter-cyclical, suppressive role. We have a government that hasn't been able to agree on a budget in five years; that has historically, under both Republican and Democrat presidents and congresses, spent money and committed itself to fund long-term programs without devising revenue streams to cover the current costs or fund future liabilities."

Chuck again. WOW! Now, that's what a U.S. Fed Head should sound like! Instead we get the usual "Fed speak". Which doesn't do any of us any good, for they say two things at once, and then come back later and say, "see I told you". What?

Well, Gold didn't have a good end of the week, after the FOMC meeting last Wednesday, but that didn't stop the shiny metal from putting in a strong performance for the latter part of the month of October after hitting a low of $1,251 on October 15. I always stop to think about Gold's value, even at home folks. And whenever I do, my mind begins racing with all sorts of reasons why Gold should continue to climb.. Let's start with the 47.6 million Americans that represent 23.1 million households on food stamps. The bill for this will amount to $63.4 Billion. Who's going to pay for that? Or do we just go deeper into debt?

Yes, I told you a couple of weeks ago that there was going to be a cut to the monthly amount in the Food Stamps program, that would kick in on November 1st. But, that will only cut $5 Billion from the program next year, and remember, the Gov't is still recruiting people to sign up for the program! But let's not dwell on this too long, for it gets depressing. Instead, let's skip over the 3 rounds of Quantitative Easing (QE). Sure, the Gov't printing money for 4 years hasn't produced runaway inflation as most would have thought we would have seen by now, but remember, the velocity of money is nonexistent right now. When banks begin to let go of the reins holding back the velocity of money. they'll be no holding back runaway inflation!

And let's not forget about those $127 Trillion, of Unfunded Liabilities, that professor Lawrence Kotlikoff says is really $222 Trillion today. And, that 10,000 Baby Boomers will retire today, and tomorrow, and the next day, and every day for the next 18 years! What will that Unfunded Liabilities # be, let's say in 10 years? OMG!

And then the number one reason to own Gold, in my opinion, is the store of wealth. Enough said!

The U.S. data cupboard takes a breather this week, and backs off the plethora of data that it has printed lately. There won't be much in the way of market moving data this week, with Leading Indicators and 3rd QTR estimate of GDP sprinkled in throughout the week, so the markets will have to depend on the Central Bank statements for direction.

For What It's Worth. I have something for you today, from my friend, Bill Bonner. On Friday, I received friend Bill Bonner's daily letter. His new letter is now called: Diary of a Rogue Economist where you can find his entire letter: I found something that he said on Friday to play well in the sandbox with what I'm always telling you, so you know me, I think it to be important to hear these things from more than one individual. (even though that one individual is honest, trust worthy, all-American boy like me! HAHAHAHA!) Here's Bill, who earlier in his letter said what I had said on Friday, about how the markets are back to the tapering thought, but he doesn't believe the markets are correct here.

"As to real demand - what you get from increases in real wealth and real prosperity - the Fed knows nothing. except that it can't help.

The Fed is not stimulating a recovery. But it is simulating one - with phony demand coming from phony asset prices based on phony low interest rates. And now it can't take off the mask.

Because then all the disguises, false beards, and fraudulent get-ups would have to come off too - like the day after Halloween. Then we'd see things for what they really are.

Then we would realize that much of our stock values, our standards of living, our earnings and our balance sheets are all based on a lie - the lie of constantly expanding credit.

Since the early 1980s, credit growth has been increasing roughly twice as fast as US economic growth in real (inflation-adjusted) terms. That's when everyone came to believe that "deficits don't matter."

But deficits do matter.

Because when you increase your debt faster than your income for 30 years, you end up with a lot more debt than income. You also find yourself at a dead end.

Your economy has come to depend on something that can't continue. You can't run up your debt levels forever. Eventually, forever comes. And then the masks drop . the beards fall to the ground . and the costumes come off.

In short, our economy is living on borrowed money and borrowed time. When the Fed stops suppressing interest rates, its time will be up." - Bill Bonner

Chuck again. Telling it like it is. Aaron Neville style. That's Bill Bonner!

To recap. The dollar rally that began with the FOMC statement last Wednesday, carried through to the end of the week, but appears to be slipping this morning, with the euro leading the pack after a stronger than expected Manufacturing report from the Eurozone. The ECB will meet this Thursday, no rate move is expected, but Draghi could begin to lay the tracks for one later. The RBA will meet tonight, again, no rate move is expected, but the statement could prove to be difficult for the A$. China gains 17% of global trade in renminbi in the last year. Now do you begin to get the picture of what those currency swap agreements are doing?

Currencies today 11/4/13. American Style: A$ .9505, kiwi .8310, C$ .9610, euro 1.3510, sterling 1.5975, Swiss $1.0965, . European Style: rand 10.1775, krone 5.9390, SEK 6.4920, forint 218.85, zloty 3.0920, koruna 19.1225, RUB 32.43, yen 98.65, sing 1.2430, HKD 7.7525, INR 61.72, China 6.1382, pesos 13.01, BRL 2.2465, Dollar Index 80.59, Oil $94.74, 10-year 2.61%, Silver $21.83, Platinum $1,456.38, Palladium $743.53 (did you read Tim Smith's Sunday Pfennig on Palladium?) and Gold. $1.318.25

That's it for today. Well, my first weekend without Cardinals baseball since last March, was sure missing something! Our Blues split a pair of games on the road this weekend, they're off to a good start, let's hope they can build on it this year. Little Braden Charles spent the night with us Saturday night, and watched the Mizzou Tigers game with me. He kept calling it baseball though, so I'm not sure how much he really watched! My stomach finally quit bothering me yesterday, let's hope that continues a couple of more days! I was doing some writing on Saturday morning for an upcoming project. I was reflecting on a lot of things, and started to become depressed, so I stopped! So, you can look forward to reading that at some point in the future! HA! NOT! You and me, dear reader! We're like the song that's playing on the IPod right now. The Turtles singing: Happy Together! Now, go out and have a Marvelous Monday!

Chuck Butler
EverBank World Markets

Posted 11-04-2013 12:40 PM by Chuck Butler