In This Issue   Its all about FOMC Tapering

first_imgIn This Issue. *  It’s all about FOMC & Tapering today. *  Other data takes a back seat. *  Norges Bank to change bias? *  Revisiting 1989. And, Now, Today’s Pfennig For Your Thoughts! Put The Board Games Away, Time To Decide. Good day.  And a Wonderful Wednesday to you! Today is THE DAY! The day we’ve all been waiting for! Well, maybe somebody has been waiting for this day. Me? I’ve been waiting for the day when they tell me I’m cancer free! Now that will be a day worth waiting for! But, since that day isn’t here, we have to settle for looking forward to what the Fed Heads say after their 2-day FOMC meeting ends this afternoon. Yes, the Fed Heads will finally put all the board games away, and come out of the room to make an announcement on Tapering. Please, I beg you Fed Heads to do that, for I cannot stand to wait any longer for a Tapering announcement! OK. I’ll take my tongue out of my cheek now! But seriously, you would think that this Tapering announcement is like discovering the fountain of youth!  So. are you ready? To sit by his throne? Are you ready not to be alone? Someone’s coming to take you home, and if you’re ready, then he’ll carry you home. OK. Sorry, but I was typing are you ready? And that Pacific Gas song wouldn’t leave me alone!  The currencies appear to be trading in the same clothes as yesterday, except for Gold which is down $10 this morning. Gold quickly turned yesterday morning’s $6 gain into a loss on the day during the NY trading hours. I’m just about ready to go yell at the walls so, please excuse me for a minute while I do that, I’ll be right back! ……… OK! I’m back. I don’t think yelling at the walls has the cure for my disgust that it once had! I’m still hopping mad, just thinking about how Gold has been taken down again. When I was in San Francisco last month, I told quite a few people that asked me that I thought the price manipulators had gotten what they wanted, that is, they got all the Johnny-come-lately Gold buyers to panic and sell, thus driving the price lower so the manipulators could buy at cheaper levels to cover their short positions. And that they would stay away for awhile now. But, I was too optimistic about them staying away. The move the over day during the overnight trading was so obvious that it was price manipulation, but yet, no regulator, investigator, investigating journalist, will talk about it. The whistleblowers at JP Morgan are coming clean about price manipulation, and still no major news outlet will report on the story. I know you think I’m crazy, and living in a fantasy. I guess I’ll have to be living in a fantasy, that’s the way it’s got to be, from now on. So. The currencies are remaining well bid ahead of the FOMC announcement this afternoon. I still find this pretty amazing, given the risk of an aggressive announcement this afternoon. I saw a story last night, while I was watching my Cardinals score at will for once in a blue moon, that talked about how the Fed has seen the housing sector rally hit a speed bump caused by the higher mortgage rates, and because of this, the Fed Heads will still announce tapering this afternoon, but only cut back their purchases of Treasuries, and leave the mortgage backed bond purchases alone. I don’t think that will come into the Fed Head’s minds. I just don’t see them doing that, but instead making an emphatic statement that Tapering is NOT changing Monetary Policy (interest rates). Big Ben Bernanke has worked diligently toward helping the markets understand this, but as I told you yesterday, the markets just aren’t buying it. And while we could see Treasury yields drop a bit more if the FOMC announcement is as I said it would be yesterday, at first. But, eventually, the yields should get back on the riser. There are other things going on this week. But for the most part, it’s all about the FOMC and Tapering.  One of the big things going on in Norway tomorrow that’s flying under the radar screens is the Norges Bank meeting, where observers that thinking that Norges Bank Gov. Olsen, will remove his wording about how the bank was prepared to ease. In fact, observers think that Olsen might even hint at a rate hike in 2014, as inflation in Norway has surged 2.5%, the Norges Bank’s target.  Remember, Norway has been battling through a housing bubble, which kept Olsen from cutting rates. But economic growth is picking up, inflation is rising, and the krone’s strength is no longer a problem for exporters. So, I too believe that a rate hike will be the next move in rates by the Norges Bank. That should be a firm underpin for the krone going forward. The U.S. will report their 2nd QTR Current Account Deficit tomorrow. I would say that with the Trade Deficit expanding by so much recently, the Current Account Deficit will remain a problem.  I talked about the Current Account Deficit yesterday, and even gave you a snippet from an April 2002 Review & Focus where I highlighted the problems going forward for the dollar with a high Current Account Deficit. It will be interesting to see if the markets even notice this report tomorrow, or if they will still be looking for tidbits and crumbs left on the floor from the FOMC meeting today. In June of 2002, I wrote in the Review & Focus, “Morgan Stanley’s chief economist, Stephen Roach recently said, “America’s Current Account Deficit is on an explosive path.”   And now back to 2013. What explosive path did the Current Account go down?  Well, Foreigners started to back away from the auctions, pushing the Fed to step in and purchase large percentages of the Auctions. Also, in June 2002, the euro traded around parity to the dollar. The Purchasing Power of Americans went to hell in a hand basket. I would say that certainly were the results of an explosive path. And one of the biggest beneficiaries of the decline in the U.S. financial power in the past decade have been the Chinese. Just think back to all the steps the Chinese have taken to bring their economy, currency and way of thinking out of the dark ages and to the front of the class! I’ve chronicled all of these steps / move by the Chinese, even when most people didn’t think they would amount to anything. I knew what the Chinese had on their minds, and not because I’m a mind reader, it was because they told us! They told us the dollar standard was near an end. The renminbi / yuan was allowed to appreciated near a record high overnight. And the renminbi / yuan forwards are rallying again, which is a forward look at what the markets think about a currency like the renminbi, or Indian rupee, or Brazilian real. All of these are called non-deliverable forwards, and have different trading characteristics of deliverable forwards. Reuters has a story this morning about how European Union (EU) and China are preparing for trade-pact talks. This has me thinking of what other trade-pacts have led to between other countries and China. They have led to FX Swap agreements, where the two countries agree to remove dollars from the terms of trade, and to only use each countries respective currency.  Should China work out an agreement like this with the EU. I would say that the dollar’s reign as the Reserve Currency of the World will have taken a huge hit. So. Back to the FOMC today. We have an Economic roundtable group at EverBank that I participate in, and the other day I told the other participants that I thought the Fed was going to replace Quantitative Easing / QE with forward guidance. And keeping that in mind, I think this afternoon, we’ll see a good example of that. I just think that this is going to be a train wreck for the Fed, given their history of being overly optimistic about the future of the economy. They will, in my opinion which could be wrong, continually have to come back to the markets and explain how they were wrong, and change their guidance. The U.S. data cupboard will still yield some economic reports today, even with the FOMC taking everyone’s attention away.  We’ll see the color of some Housing data today, Starts and Building Permits. But nothing to really sway the markets ahead of the FOMC announcement this afternoon. Before I head to the Big Finish, I thought I would l give you some humor to start your day. From Conan. “A new study found that toddlers who talk early tend to develop a drinking problem later on in life. Another warning sign is if the kid asks for his milk on the rocks.” – Conan For What It’s Worth. This is from the Washington Post, and written by Neil Irwin. And is depressing, yes. but shoots holes in the claims by Gov’t officials of how much better off we are today. “The Census Bureau is out with the annual report on incomes and poverty. And while you might think that after years of stagnant incomes and elevated poverty rates, we would be inured to the depressing facts contained therein, it still somehow has the power to shock. For my money, the most depressing fact about the economy is not the fact that household incomes were basically flat in 2012 (the real median household income was down to $51,017 from $51,100 in 2011, a statistically insignificant change). It wasn’t even the fact that 15 percent of the U.S. population was living in poverty, according to the official, flawed definition of the term. The most depressing result shows that in 1989, the median American household made $51,681 in current dollars (the 2012 number, again, was $51,017). That means that 24 years ago, a middle class American family was making more than the a middle class family was making one year ago. This isn’t a lost decade for economic gains for Americans. It’s a lost generation.” Chuck again. 1989. Tiananmen Square. Berlin Wall opens. U.S. troops invade Panama to capture Noriega. San Francisco earthquake during World Series. our national debt $2.8 Billion. Chicago had the #1 Billboard hit of the year. Milli Vanilli was hot. Driving Miss Daisy was the top movie of the year (how it beat Field of Dreams is beyond me!) . And we moved into our brand new house! (not so brand new anymore!) To recap. It’s all about the FOMC and Tapering today, folks.. are you ready? The currencies remain well bid and are trading in yesterday’s clothes this morning ahead of the Tapering announcement. Gold is off another $10 this morning, as the price manipulators continue to whack away at the shiny metal without any fear of being caught. China pushes the renminbi toward a record level, and we revisit 1989. Currencies today 9/18/13. American Style: A$ .9350, kiwi .8215, C$ .9705, euro 1.3355, sterling 1.5965, Swiss $1.0790, . European Style: rand 9.8360, krone 5.9115, SEK 6.4640, forint 223.35, zloty 3.1699, koruna 19.3295, RUB 32.28, yen 99.05, sing 1.2590, HKD 7.7540, INR 63.37, China 6.1557, pesos 12.94, BRL 2.255, Dollar Index 81.13, Oil $106.10, 10-year 2.84%, Silver $21.49, Platinum $1,418.40, Palladium $699.29, and Gold. $1,300.11 That’s it for today. Today is the 66th anniversary of the Air Force.. it was in 1947 they became a separate military service. Another Swim meet last night, this takes me back to when Andrew swam in High School. Back then it was a winter sport, and Water Polo was a fall sport, I have no idea why they got all switched around.  Cardinals sneak 1 game ahead. need to stretch it out! The Blues started hockey training camp last week, it won’t be long before hockey season begins. Then before too long we’ll have all 4 major sports going on. Crazy long seasons, eh? Baseball heads to its final two weeks of the season, before the playoffs start.. I don’t know, but why does it seem like I just came back from spring training?  Where did the summer go?  I saw Halloween stuff in the stores last week, so we’ve got that going for us! I thank you for reading the Pfennig and hope you have a Wonderful Wednesday! Chuck Butler President EverBank World Markets 1-800-926-4922 1-314-647-3837last_img

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