The Currency War Of All Currency Wars?
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In This Issue.

* Currency rally gets turned around.

* Fed members fire the first shots. .

* Petrol currencies get double whammy.

* Chuck on his soapbox again!.

And Now. Today's A Pfennig For Your Thoughts.

The Currency War Of All Currency Wars?.

Good Day! . And a Happy Friday to one and all! Well. A day without baseball is like a day without sunshine, like they had back home in St. Louis yesterday. A real stormy kind of day. I love to watch rain, but after about 20 minutes it's time for the sun to come back out! Of course I'm talking about rain that comes when I'm safe at home, with nothing else to do! We've had so many backyard parties over the years interrupted with rain, and so I certainly didn't love watching it then!

And I certainly didn't like watching the currencies and metals turn around yesterday as the day went along! I told you yesterday that I didn't know how long the currency and metals rally would last, and that was quickly resolved, as the dollar rebounded not long after I hit the send button! The reversal was quick and cut deep, as the currencies gave back their gains from the previous day's rally that came after the FOMC Meeting Minutes (FOMCMM). I guess the lively discussion with the fed members discussing their fear of the stronger dollar, wasn't enough to hold the markets' collective attention yesterday. The fed members said, for those who missed class yesterday, that they were concerned with the strength in the dollar, as it would hurt the economy in two ways. One it would make imports cheaper, thus fueling the deflation the Fed has been running away from or 5 years, with QE, and 2. The stronger dollar would squash the economic recovery..

So, to me, I would think the markets would take this lively discussion and say,: Lorem Ubi fumus, ibi ignis. That's Latin for Where there's smoke, there's fire. A fave saying of mine. But think about that for a minute, and no, not that I used Latin in the Pfennig, but that the fed members are concerned with dollar strength. Do you really think the fed members are just going to sit back and allow all that they worked for these past 5 years, to eradicate deflation, to be wiped out by dollar strength? I don't. So, I do believe there is fire, or will be fire. Sort of a reversal if you will of the period in the late 90's when Treasury Sec. Robert Rubin turned the dollar weakness around by saying: A strong dollar is in the best interests of the U.S. Those words scared the bejeebers out of traders, and they reversed their short positions in dollars. So, this "lively discussion" could turn into a reversal of the dollar strength.

But not yesterday, or this morning. I turned on the currency screens to see a lot of red in the currencies that should show green, and lot of green in the currencies that should show red. And Gold is down, so it's another "All-Out Assault Friday". As if the traders around the world said, "yes sir, may I have another?" UGH! The higher yielding currencies of Australia (A$) and New Zealand (kiwi) are taking it on the chin this morning, as well is the euro, and with the rot we've seen in the price of Oil recently, the petrol currencies that include: Brazil, Russia, Norway, Canada, the U.K. and others are all getting taken to the woodshed.

Speaking of Canada. Today, Canada will print their latest labor report. I expect this to be good, not great, but good, and will help underpin the Canadian dollar / loonie to offset the pain caused by the drop in the price of Oil this week. But then we've been surprised by the Canadian labor report before, and not to the good. So, watch out for this one.

And Norway printed their latest inflation report this morning, and helped the krone find its way to the slippery slope. Norwegian September consumer inflation printed at +2.4%, which was lower than the forecast of 2.6%... And that sunk the krone, because inflation in Norway had been heating up and was beginning to get currency traders all lathered up for a potential rate hike.. Yes, I know, I always remind you that it's just one report, and one swallow doesn't make a summer, and so on. So, let's keep an eye on this, but for today, the markets are in no mood to be patient.

The Japanese yen of all currencies, right?, is the lone wolf out there with a gain VS the dollar this morning. I was reading yesterday, and came across some research that said the yen is about to reclaim the number one trading pair with the dollar, taking that position away from the euro. Really? I'm surprised by this, as I was under the impression that the euro was entrenched as the offset currency to the dollar. Yen has really fought back this past week, after hitting 110 last week, yen has rallied back 2 whole figures.. You know, this yen strength is going to tick the Bank of Japan (BOJ) Gov. Kuroda off, big time, right? And then we could have the Currency War of all Currency Wars!

The Fed VS BOJ to see who can get their currency weaker. Now that would be pretty interesting. Shoot Rudy, they might even make a movie out it! HA! And firing the first cannonball was fed member, Lacker, who told an audience yesterday, that he "expects the U.S. economy to grow at a more muted pace than some expect" And then fed member Williams, said it is appropriate to "begin to raise interest rates sometime in the middle of 2015, but the decision remains data-dependent and will remain accommodative for some time."

Well the first runoff polls are out in Brazil and have the challenger Neves, ahead of the incumbent, Rousseff 51% to 49%... Really too close for comfort. I'm still waiting for former challenger Silva, to announce that she will support Neves. I believe that when that happens, her supporters will move to the Neves camp, thus widening his lead. Unfortunately, this is all full of uncertainty ,and that's not good for the real. At least traders can hang their hopes on an upset happening.. .I know I don't think I've ever spent as much time talking about an election in a country, but given the situation, and how the real reacts with every poll, I think it's important to discuss..

I can't think of another country's leader that did more to ruin their own currency than Rousseff has done to the real, and believe me, there are some doozy candidates for that title! We could star with Woodrow Wilson, and go forward. But I think you get the picture here. As I said before, if I were in Brazil, I would say to Rousseff. "I'd like to help you out, which way did you come in?"

Gold is down a couple of bucks this morning. I see where there are reports that production of Gold I still strong, despite the drop in price. But, I have to question if this production can continue at this pace. I doubt it, is what I'm saying. And don't forget that I told you a couple of months ago that I believed there would be a Silver shortage due to the industrial use demands. So what I'm saying here is that we could see some real upward moves due to shortages of metals next year. of course that's my opinion and I could be wrong.

The U.S. Data Cupboard is still searching for something to report. Today, they have the U.S. Monthly Budget Statement, which should be a deficit of around $82 Billion, up from the August total of $75 Billion. But as I said yesterday, the markets have become comfortably numb with these numbers, and therefore, nothing will become of this. And U.S. stocks took a shot to the gut yesterday, marking the second such day of HUGE losses in the past week. Is the lack of liquidity beginning to show up? I think the IMF's warning about global growth slowing down put the hex on stocks yesterday.

Before I head to the Big Finish today, I wanted to get this off my chest, so here I go, stepping up on Chuck's soapbox..

Yesterday, I received an email with a link to a story about job openings in the U.S. And that got me thinking. The problem with the media getting euphoric with the story, they should read more and more about the whole situation, for what good are the job openings if there aren't qualified people to fill them? That's what seems to be a BIG problem in the U.S. For many of the unemployed were trained to do one thing, and then that jobs goes away, and there are new ones ,but they are technical in nature, and while that suits the younger generation, it certainly doesn't fill the glass for us old-timers, now does it? The Middle Class of the U.S. is gasping for air, and job openings that they can't fill is like throwing the Middle Class a block of cement as they tread water.

For What It's Worth.. OK. I found this on the Bloomberg this morning, and Oh Brother, does it rile my feathers! Let's listen in as former fed member, and consultant to my old bank, Mark Twain Bank, Laurence Meyer is talking about inflation expectations eroding. Uh-Oh!

"Federal Reserve officials are hunting for new tactics to raise price increases to their target as slowing global growth, cheaper commodities and flat wages sound warnings that inflation is descending toward the danger zone.

The Fed needs a clear strategy for getting the inflation rate higher after falling short of its 2 percent target for 28 consecutive months.

Now, as longer-run inflation expectations erode in financial markets, the Federal Open Market Committee is shifting its focus toward prices after putting its main emphasis on jobs for months. Several officials worried that "inflation might persist below" the committee's target for "quite some time," minutes from the Sept. 16-17 meeting said. Too-low inflation is getting to be a real issue again." - Laurence Meyer

Chuck again.. Well, it's not like I didn't tell you that this would happen when the Fed began unwinding their QE. But don't tell me that with their 100's of economists on the payroll, that this scenario hasn't been discussed amongst themselves before now! These guys didn't just fall off the turnip truck! Well, at least I don't think they did!

To recap. the one and done currency rally, ended yesterday morning, and this morning we're having another "all-out assault by the dollar, Friday". The petrol currencies are getting a double whammy, joker, joker, whammy! The higher yielding currencies of A$ and kiwi are getting whacked again, and have given back all the gains from their rally that occurred after the print of the FOMCMM. Could we see the Currency War of all Currency Wars between the U.S. and Japan? And Canada will print their labor report today, Chuck is looking for a good report, to offset the damage of the lower price of Oil on the loonie.

Currencies today 10/10/14.. American Style: A$ .8710, kiwi .7815, C$ .8925, euro 1.2650, sterling 1.6050, Swiss $1.0465, . European Style: rand 11.1320, krone 6.5265, SEK 7.7595, forint 242.60, zloty 3.3080, koruna 21.7280, RUB 40.39, yen 107.80, sing 1.2745, HKD 7.7595, INR 61.33, China 6.1470, pesos 13.47, BRL 2.3980, Dollar Index 85.75, Oil $84.82, 10-year 2.30%, Silver $17.34, Platinum $1,262.00, Palladium $ 790.50, and Gold. $1,224.60

That's it for today ,and for 3 days! As Monday is a Holiday in the U.S. Columbus Day, which I read last week the state of Washington was going to change the name of the day to something else. Is nothing safe anymore? Doesn't anyone just go with the traditions anymore? Oh well, whatever, right? The NLCS begins tomorrow in St. Louis. Worry time once again. I won't be with my buddies to watch the game, so I'll have to make some "new buddies" here, HA! And my beloved Missouri Tigers play the almighty Georgia Bulldogs tomorrow.. Big Game for both teams. Go Tigers! I sent a note to the trading desk yesterday, when I saw the currencies make their BIG turnaround, and said, "looks like the PPT is at it again" And Chris came back and said, "a very volatile day for sure" And that summarizes the difference in the way we think about things. I shoot from the hip, and give it my spin. And Chris takes the high road, and is more professional about things. Maybe when I grow up, I'll be more like him! Clarence Carter is singing his song: Slip Away on the IPod, and that's what I plan to do now. Slip Away for 3 days! I'll talk next to you on Tuesday, enjoy the weekend, and have a Fantastico Friday!

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





Posted 10-10-2014 1:29 PM by Chuck Butler
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