The Price of Oil Jumps!
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In This Issue.

* Euro inches higher .

* Renminbi sees huge appreciation.

* Aussie drags down kiwi .

* The Fed to begin using reverse-repos .

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

The Price of Oil Jumps!

Good Day! And a Wonderful Wednesday to you! Well, yesterday is just a blur to me. I sure hope I can remain awake a longer part of the day, than I did yesterday! I left here, went home, fixed me some lunch, read the newspaper, and collapsed in my recliner. The house was quiet, so I took advantage of that! I just saw on the TV that the hottest names for 2013 for boys is Jackson, and for girls it's Sophia. I tell young people all the time, that there's no prize for giving your child the oddest name so you can be different, remember, the kid has that name for the rest of their life! But no one listens to me.

Yesterday's currency action was pretty much muted, in that there was little movement. The euro inched higher during the day, but the move was pretty much a non-event. The U.S. dollar continues to gain favor with the markets' idea that the Fed will begin tapering Quantitative Easing / QE sooner than later. Of course, the markets failed to read the news from the Fed Heads, or the Pfennig, for if they did, they wouldn't have this idea any longer! But it is what it is. And we have to deal with the dollar strength, eh?

The big mover overnight has been Oil. The price of Oil shot up $3 since yesterday morning, on news that TransCanada Corp. said they will start part of its Keystone XL Pipeline in January which could relieve the supply bottleneck. In addition, the U.S. announced that their crude stockpiles shrank. The price of WTI Oil has gained $5 this week! I thought there was all that talk the past couple of years by people that should know better that an Oil revival was going on in the U.S. and that the price of Oil was going to drop to $40?

As I've explained before, there may be an abundance of Oil in the U.S. from fracking, but the cost to get it out of the ground just continues to go higher.

The Petrol currencies that include: Canada, Norway, Brazil, Russia, the U.K. and even Mexico, would normally be smiling like Cheshire Cats with the price of Oil rising like this, but it has been choppy waters for these currencies, as this (what I call) bear market rally for the dollar continues to be a real headache for the currencies and metals.

OK, so there I was just minding my own business doing some reading, (Hey, if you haven't seen it, Grant Williams' latest piece of Gold manipulation is a long read, but well worth the time!) when along came a spider and sat down beside me. And pointed me toward a story on my screen about a Fed Head, (Potter) that was talking about the "Fed's New Tool" that would be used to help keep rates in line once tapering begins. Well, you know me. I just had to stop to see what this was all about. And what he was talking about, wasn't exactly anything new, at least not to me, who used to trade the short term stuff at Mark Twain Bank, Bankers Acceptances, Commercial Paper, T-Bills, and repos. Back in the day, we had quite the book of Repos (repurchase agreements). And the Fed had used repos for many years as a monetary tool.

What he was talking about may not have been new, but it is different! He was talking about reverse-repos. in a reverse repo, The Fed lends securities (the Good Lord knows the Fed has tons of these to lend out!) for a set period, temporarily draining cash from the banking system. And at maturity this is all unwound. But how is this going to help keep rates low when tapering begins, as IF tapering would begin in the first place I might add!,? Well, by keeping the cash that the bank has that would normally be loaned out, and thus begin the velocity of money cycle, which would drive interest rates higher to combat inflation, the interest rates remain down.

So the "tinkering" by the Fed Heads continues folks. And I bet you're scratching your head and wondering why the Fed believes the banks would want to give their excess reserves to the Fed and get paid for them? Because as I told you last week, the Fed wants to stop paying banks an interest rate for their excess reserves. But, I thought they said that wanted to stop paying interest on reserves so the banks would put the money to work in the economy? So, what's it gonna be boy? Do you want banks putting money in the economy or not? I just don't get all this tinkering that is done. Memo to those doing the tinkering. Leave the Economy Alone!

But everybody is tinkering these days, I hear the dollar bugs saying. Well. I thought that here in the U.S. that we wanted to be better than everyone else. Maybe not, eh?

Gold is down $9 this morning, and looking as if the price manipulators want to take it below $1,200 again. We all know what happened the last time that happened, the physical buyers came in and caused pain to the short position holders. I can see the Chinese backing up the truck to take as much physical Gold that they can get their hands on at these prices.

Paper trades. When you stop to think about how physical Gold (Silver and others) owners despise the paper traders and their ability to trade more (on paper) than is mined. I continue to believe that eventually the physical demand will cause the short position holders to have to either deliver or buy back their short positions, which would remove the governor from Gold.

I see that VP Joe Biden is heading to China to try and diffuse the escalating tension between China and Japan. Have you ever wondered what is the dividing line between sending the VP, President, or Sec of State? I have my thoughts, but they would be construed as being a smart you know what! Speaking of China, the People's Bank of China (PBOC) allowed a huge appreciation of the renminbi/ yuan overnight. But isn't that just like clockwork? You have a U.S. official visiting China, and the Chinese push the renminbi stronger ahead of the visit so that the U.S. official is thrown off by the stronger renminbi/ yuan!

I can't believe that the media didn't take the ball and start running with that story I told you about yesterday of how the Chinese renminbi / yuan passed the previous # 2 currency, the euro, as the 2nd largest currency used in global trade financing. What's it going to take before the mass media wakes up and sees what's going on here? Traders and analysts around the world see what I see. David Simmons the head of currency and emerging markets strategy at RBS in London, said, " The yuan is on the way to become a truly, truly gigantic market". and Cynthia Wong, the head of emerging market trading in Singapore for HSBC said, "Overseas exporters are using the renminbi more as the contract currency to increase the attractiveness and competitiveness of goods or services sold to China."

If everyone in the U.S. knew what we as Pfennig readers know about what China is doing, imagine the calls to D.C. demanding answers..

The Aussie dollar (A$) is getting pushed back down today, after an attempt to rally yesterday. The drag has been strong, and it has carried over to the New Zealand dollar / kiwi, which lost the 82-cent handle this morning. Kiwi had been the best performing Commodity Currency in recent weeks, and I think that maybe this drop in price today is simply in sympathy to the A$'s drop, and that it doesn't have legs, which would mean that this is an opportunity to buy at cheaper prices!

When I returned to my desk on Monday I had a surprise package waiting for me! Opening it up, I became so excited when what to my wondering eye did appear, but the hardback edition of the Mogambo Guru's book, Economica Mogambo! Long time readers will recall that I've been quoting the Mogambo for many years now, and on the pages in the book, the Mogambo Guru himself thanks me for all my support over the years. This is a prized possession of mine now, folks! Thank you so much for that sending that along Richard!

Here's a funny from the book. "When von Mises and Hayek want advice they dial Mogambo's home phone number. When Mogambo wants advice he dials his cell phone number."

The U.S. data cupboard has a couple of things for us to view today. The October Trade Deficit, which is expected to narrow from September's $41.8 Billion Deficit, and we'll see October New Home Sales numbers. And the Fed opens up their Beige Book this afternoon. Another thing that's on the docket today is the ADP Employment Change for Nov. Which reminds me that if we see this data on Wednesday, then the Jobs Jamboree is just a couple of days away! YAHOO! NOT! As If I would get excited about a report that has seen the books overcooked!

Before I head to the Big Finish. Did you see what Illinois passed yesterday? The passed legislature that will greatly reduce the pension payments and overhauled the retirement system. Now, this is a shame that this had to be done, but I give them kudos for doing this, and thinking about the future. I'm sure I'll get tons of emails from people that think differently, but before you get all heated up and begin pounding on the keyboard, I want you to reread the first part of what I said. Then send that heated email to your lawmakers for they are the ones that put your state in the position that they had to make cuts. Deficits don't matter. until they do.

For What it's Worth. I found this first on Ed Steer's letter, and then went over to to get the skinny. It's a short piece on what keeps Bill Gross (the bond king) up at night.

"What keeps us up at night? Well I can't speak for the others, having spoken too much already to please PIMCO's marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the "New Normal" characterization of our post-Lehman global economy, now focuses on the possibility of a" T junction" investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world.

Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. "You have no other choice," their policies insinuate. "Get used to negative real interest rates, move out on the risk spectrum and in the process help heal the real economy," they seem to command."

Chuck again. Yes. but notice he didn't say, Norway, Sweden, China, or Singapore? Seems like I've mentioned the excellent fundamentals of these countries before, eh?

To recap. The currencies inched higher led by the euro yesterday and overnight, but Gold is down another $9 this morning. The big mover overnight was the price of Oil, which has gained $5 this week! China allowed a large appreciation in the renminbi overnight, as a U.S. official is on his way to China. And the Fed is going to begin using reverse-repos to keep interest rates down after tapering begins, as if it's ever going to begin!

Currencies today 12/4/13. American Style: A$ .9025, kiwi .8195, C$ .9380, euro 1.3590, sterling 1.6365, Swiss $1.1080, . European Style: rand 10.3960, krone 6.1165, SEK 6.5025, forint 222.60, zloty 3.0895, koruna 20.1650, RUB 33.16, yen 102.50, sing 1.2545, HKD 7.7535, INR 62.05, China 6.13, pesos 13.13, BRL 2.3640, Dollar Index 80.64, Oil $97.31, 10-year 2.79%, Silver $19.05, Platinum $1,351.62, Palladium $717.03, and Gold. $1,212.68

That's it for today. Well, I just received a text from my beautiful bride, telling me that the family has been called to the hospital where her dad has been in hospice care. So, I need to leave and go there, I doubt it will be good news. My friend Walt, says I never mention my wife's name, only calling her my beautiful bride. Well, Kathy is her name, and she has remained very optimistic in the face of what appears to be her dad's last days. We spent a lot of time with Kathy's parents over the years, my older kids and him are very close. Not that this is the place for a eulogy, so I won't do that, but Kathy's dad, Larry Stringer, was a captain in the St. Louis Fire Dept, so, he always had that air of leadership, responsibility, able to innovate, change, and adapt to just about anything. I will miss our talks. they were always very lively! So, I need to get gong. So, bye for now, I hope you have a Wonderful Wednesday.

Chuck Butler
EverBank World Markets

Posted 12-04-2013 12:56 PM by Chuck Butler
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