A Look At The EFSF Pushes The Euro Higher!
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In This Issue.

* Currencies rally on EFSF news.

* Gold & Silver get sold.

* Brazil debases their currency again!

* $131 Billion in new debt issues.

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

A Look At The EFSF Pushes The Euro Higher!

Good day. And a Tub Thumpin' Thursday to you! One down, three to go! One win in the World Series does not make a winner, but it gets you going in the right direction! Great game. great pitching, managerial strategy, good plays, and one timely hit! It was cold last night, and will be colder tonight. But the cold didn't keep the 47,000+ fans from having a good time!

Speaking of having a good time. The euro has bounced higher this morning after the details of the Eurozone Financial Stability Fund (EFSF) were announced. It looks like there will be more than enough to go around to help Spain and Italy. And the audit of Greece regarding if they are implementing the austerity measures, is finished, and they EU commission has recommended the next tranche of bailout funds be made to Greece. So. the death watch of Greece, has to order out for more coffee and pastries, because they aren't defaulting this week. The problems aren't over for Greece though. There are more austerity measures that have to be approved by Parliament, and then implemented.

So. with the euro bouncing higher, most of the other currencies are bouncing higher too.

The Brazilian Central Bank (BCB) cut interest rates further yesterday by 50 basis points (1/2%) Their internal rate is now 11.5%, and again, the inflation rate in Brazil is very high, and well above the Central Bank ceiling target, so I just don't know what they are thinking here. I chastised the BCB and Brazilian Gov't back in August for cutting their interest rates then, and I've still got a bag of chastising to use on them for this rate cut!

But I think I'll wait for the last rate cut, which will probably come about a the end of November. So, go ahead and debase your currency, you dolts. and watch the investment flow reverse, right when you need foreign investment to aid your readiness of the World Cup and Olympics.

The one currency that isn't taking a liking to the announcement in the Eurozone this morning, is Gold. The shiny metal is down $15 to $1,625 this morning, with its trusty sidekick, Silver, also losing ground. I don't pretend to understand why Gold goes down when the dollar is getting sold. The only thing that makes sense is that outside forces are flipping those circuit breaker switches again.

The recent trading, save for a day here and there, has been for the overnight markets to push the dollar down, and the U.S. market push the dollar back up. And I think we'll see that again today. The EFSF details are nice and all that, but the real problem in the Eurozone isn't whether they have enough money to bail countries out. it's how to keep those countries from needing to be bailed out! And then reverse the deficit spending that has existed for some time.

The Chinese renminbi isn't joining in on the dollar selling this morning either. Hmmm. Ever since the U.S. Senate passed the protectionism bill last week, the renminbi has been soft. Those days of appreciation have gone away, like the warm days of summer. It's not like I didn't warn the U.S. Gov't that this could very well happen. along with China balking at a strong presence at the next U.S. debt auction. But that isn't stopping our illustrious leaders in Washington D.C. They know what's best. You all know that I say those last two things in jest, for they have messed up more than we'll ever even know about!

Speaking of debt auctions. and since the U.S. lives auction to auction. Today, the U.S. Treasury will auction $35 Billion of 2-year notes, $32 Billion of 3-year notes, $35 Billion of 5-year notes, and $29 Billion of 7-year notes. using my new math skills, that totals $131 Billion in new debt issues that will have to be absorbed by mainly foreigners. If not. then the Fed will have to print some dollars to buy up the issues, but first they go to the Primary dealers, and out the back door to the Fed.

My friend, John Mauldin, was talking in his letter last week about the velocity of money, or better yet, the lack of velocity of money. John said something that I've long said right here in the Pfennig. The Fed can print over $2 Trillion in new dollars through their Quantitative Easing programs, and still no velocity of money. Because Banks aren't putting the money into the economy, by making new loans. Well. can you blame them? I mean, they took the brunt of the blame for the housing meltdown, giving loans to people who had no ability to repay the loan. And now, with unemployment at 23%, and people who need loans unable to show that they can repay them, what's a bank to do? Ahhh, grasshopper. just what they are doing. holding it and earning interest.

Now. eventually banks will make loans again, it's how they make money, folks. But not until the economy and the jobs picture looks healthier.

Well.. yesterday, I told you about the Lions, Tigers, and Bears, oh my. well, they were all shot dead. Hmmm. I guess those things they show in the movies, tranquilizer guns don't work in real life, eh?

OK. back to the task at hand.

The Aussie dollar (A$) is a bit stronger this morning, but still a ways from the +$1.03 figure it held earlier this week, before the rug was pulled from under the rallying currencies. There was story that went across the screen this morning, that said, "The Bank of Russia to start buying Aussie dollar by End of 2011". This is the kind of thing that really helps a currency when a Central Bank is buying. and when they decide to sell it can be ugly. But, it looks like the Bank of Russia could be helping the A$'s value as we head into year-end.

The stupid U.S. CPI report printed yesterday, and showed that inflation according to the Gov't held steady at 3.9% year-on-year, and actually weakened in September from August by .1%... To all that, I say HOGWASH! A quick check over at Shadow Stats tells me that "real inflation" is 7%... And that's before the velocity of money is unleashed on the economy, whenever that might be!

Housing starts data for September also printed, and show a real nice increase. but once again, I wonder why. Home inventory is our big problem. we don't need more homes, we need people that can afford to buy the existing ones! Today, since it's a Tub Thumpin' Thursday, we'll see the Weekly Initial Jobless Claims.

In addition, we'll see Leading Indicators , the Philadelphia manufacturing index, and Existing Home Sales. So it will be busy over at the data cupboard this morning.

Then there was this. This makes my blood boil, and it should yours too, folks. from Bloomberg. "Federal Reserve Now Backstopping $75 Trillion of Bank of America's derivatives Trades" Bank of America shifted derivatives from its Merrill Investment banking unit to its depositary arm, which has access to the Fed discount window and is protected by the FDIC.

According to Bloomberg. "This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to "give relief" to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve."

Chuck again. So. remember when I told you that a large percentage of the Credit Default Swaps on Greece and other Eurozone peripheral countries where held by U.S. institutions? Well, folks. looks like that liability is now being switched to you and me. the taxpayers. Does that make you angry? Call your Senator or Representative, and send them so many emails that they have to address this!

To recap. The details of the EFSF were revealed this morning, and it looks like there's enough to go around to help Spain and Italy, which has boosted the euro this morning. of course if the euro is rallying so are most of the other currencies. Gold is not rallying, and is down almost $20 this morning. The Brazilian Central Bank cut rates again yesterday, and the Gov't is attempting to convince us that inflation actually fell in Sept from August by .1%!

Currencies today 10/20/11.. American Style: A$ $1.0265, kiwi .7975, C$ .9845, euro 1.38, sterling 1.5790, Swiss $1.1155, . European Style: rand 8.09, krone 5.5975, SEK 6.6050, forint 214.50, zloty 3.1590, koruna 18.0375, RUB 31.29, yen 76.80, sing 1.2670, HKD 7.78, INR 49.80, China 6.3830, pesos 13.42, BRL 1.7665, dollar index 76.92, Oil $86.50, 10-year 2.18%, Silver $30.73, and Gold. $1,620.40

That's it for today. Sure had fun on the way to the game and home with the family last night. In order for us to all go, I had to sit in a different area (thanks Sandra!). But my darling daughter, Dawn, mentioned that it was the first time just the 5 of us went somewhere together in many years. And she was right. it has been some time. Dawn has been married for 8 years now. WOW! I went home from my radiation treatment yesterday, and took a good nap, so I would be able to stay up for the entire game. Radiation is no picnic, and I'm sure there are quite a few dear readers that have had radiation, so I'm not telling them anything new. I don't wish it on anyone! But I carry on. it takes more than that to keep me down! And with that I'll get this out the door, while listening to Earth Wind & Fire's After the love is gone. I hope you all have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 10-20-2011 11:08 AM by Chuck Butler
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