Post Bailout Plan Gains, Completely Wiped Out!
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In This Issue.

* Greek PM to put bailout to a vote.

* Markets price in a "no vote" deep sixing the euro.

* RBA does cut rates 25 basis points.

* China prepares for U.S. vote.

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

Post Bailout Plan Gains, Completely Wiped Out!

Good day. And a Tom Terrific Tuesday to you! How was your Halloween? I had a cute little monkey, Peter Pan, and Tinkerbelle at the house. So, darn cute! I was able to sit outside and give out candy to the kids that were Tick-or-Treating. Some very cute kids. but some really lame jokes! I don't know who they get their material from these days, but the jokes are lame! Hey! I like corny, silly, thoughtful, and the list could go on, kinds of jokes, but not lame! Put some effort into it! Oh well. All Hallows Eve, ended early, with no scary creatures.

But, there was the sighting of a scary creature in Greece yesterday. Oh My! Here's what I'm talking about folks. The euro has gotten swatted back to the corner it came from after the Grand Plan was announced last Wednesday night. The single unit is doing the rope-a-dope, and fighting to stay on terra firma, but to no avail. the scary creature from Greece has deep sixed the euro and thus the other currencies , even yen, Swiss francs, and Gold.

Greek Prime Minister, Papandreou, decided yesterday that he was going to put the Grand Plan to a Parliament Confidence Vote, and then a public referendum. Now. I'm not saying that democracy is a bad thing here folks. What I'm saying is that the referendum has zero chance of passing, for the Greeks have protested each and every austerity measure. This is a HUGE gamble folks. The Greeks don't want austerity measures, but they want to remain in the euro. Apparently, Papandreou hasn't done a very good job of convincing the Greeks that they need these austerity measures or else they will default.

So. knowing how the Greeks feel about austerity measures, the markets have already priced in a "no vote", by clobbering the euro. yesterday morning, the euro was holding on to 1.40, and this morning it just lost 1.37. This is the biggest one-day drop in the euro since August of 2010. And with the euro getting clobbered. The rest of the currencies are also getting that same treatment!

In the end. I truly believe that putting this to the vote of the Greeks, is democracy, and that's all good. I just wish the Greek leaders had done a better job of explaining the problems of extending the spending. Remember Ronald Reagan and his charts? He would explain to the public what was happening, etc. Hey Papandreou, where are the charts? I just think that Papandreou sees this as his chance to be seen by the Greeks as a "politician for the people" , and not someone that's going to stick this bad medicine down their throats, whether or not they need it or don't!

Another scary creature surfaced in Australia, where the Reserve Bank of Australia (RBA) did indeed cut rates 25 Basis Points (1/4%) So. I was wrong on what the RBA would do. I used to think of the RBA as a "Prudent Central Bank", but no longer. The economic data doesn't support this rate cut, but the markets pushed and pushed for this rate cut, and finally the RBA allowed the markets to direct them. And that no longer makes them Prudent. But recall what I told you yesterday, and that is the Aussie dollar (A$) had already gotten sold on the prospects of a rate cut. And now that the rate cut has come, the A$ wasn't as harmed on the actual cut. But that's because a lot of it was already priced in. UGH!

The whole "risk on" that was so strong late last week, has been sent to the woodshed. And one of the things that will keep it there was the PMI Print in China last night. PMI is Purchasing Managers Index, or manufacturing index. Here in the U.S. we used to call it PMI, then we changed the name to ISM. Well, China's PMI weakened in October from September going to 50.4, from 51.2. Still above "50", which means that manufacturing is still expanding, but heading in the wrong direction. But that should help China's inflation problem. Remember. while the Chicken Littles have been calling for a collapse of the Chinese economy for over 2 years now, I've said all along that "moderation" was the Chinese goal for their economy.

The Risk Off which now is in place is evidenced by the drop in the U.S Treasury 10-year yield. Just last week when investors were flying out of Treasuries the 10-year yield dropped to 2.38%... This morning, it is back to 2.05%!

And remember that bill to punish the Chinese that passed through the Senate and currently resides in the House awaiting for a vote? Well. according to a story that was in China Daily, the Chinese will not take kindly to the passing of a bill that punishes their exports. Here's a snippet from the China Daily story: "The currency legislation proposed by the US would hurt the interests of both China and the US. We are strongly against it," said He Ning, director-general of the Department of American & Oceanian Affairs with the Ministry of Commerce.

"If it eventually passes and becomes law, we cannot ignore it and will definitely reciprocate in kind," said He, who refused to elaborate.

"We have readied ourselves with measures to deal with the possible outcome from the US", He said.

Speaking of ISM. We'll see the color of the October ISM today. The experts believe that manufacturing in the U.S. increased in October. Since I'm from Missouri, I'll have to be shown that! But. manufacturing got a boost in October, as the dollar got hammered.

Well. Gold is barely hanging on to $1,700 this morning. So I think this pretty well tells you that the goings on in Greece do not represent uncertainty. Because if there was uncertainty in the markets, Gold would be pushing higher. There's no uncertainty in Greece, because everyone has seen the riots and protests against austerity measures. why would they vote for them?

According to records that are kept on deposits at the Bank of Japan (BOJ). those deposits rose 7.7 Trillion yen in the past few days. Which when you connect the dots means the BOJ sold about 8 Trillion yen and bought other currencies in their attempt to weaken the yen price. Hey. as Dr. Evil, told his son, shish. I've got a whole bag of these! And that's what the BOJ can say. they have a whole bag of yen, that they can sell.

But. one has to wonder what the other countries feel about Japan buying their currencies and driving up the price so much. I would think that after awhile, they would grow tired of helping Japan. But they can't stop the BOJ from doing the transactions. So. let's see how long this lasts!

I saw this on the Bloomberg this morning. "As speculation mounts about credit default swaps on Greece's debt, the International Swaps and Derivatives Association's determinations committee has the ultimate say on whether CDS are triggered. ISDA said it is too early to tell whether a recent haircut on Greek bonds constitutes a "credit event." "As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts," according to ISDA. "However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them."

Chuck again. I tried to explain this to someone the other day, hopefully this does a better job than I did!

Then there was this. Former U.S. Treasury Sec. and economist, Larry Summers, had this to say the other day. "The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending. Most policy failures in the United States stem from a failure to appreciate this truism... "

Chuck again. in other words. "spending got us in this mess, and spending will get us out of it" On my patio with buddies, I would tell them how ridiculous this statement was and what I thought of anyone that made a statement like that, especially an economist. But, that's the only place, because I'm no longer allowed to express these thoughts in the Pfennig.

To recap. Greek PM Papandreou, has announced a Parliament vote of confidence and then a public referendum on the Grand Plan. The markets truly feel that this is a huge gamble, and that the public will vote no, and then the whole plan will fall apart. This has clobbered the euro by over 3-cents in the past day, and all the other currencies follow suit, even the Japanese yen, Swiss francs, Chinese renminbi, and Gold! The RBA did cut rates last night by 25 Basis Points, but most of the rate cut had been priced into the A$ already.

Currencies today 11/1/11. American Style: A$ $1.0315, kiwi .7950, C$ .9880, euro 1.3705, sterling 1.5920, Swiss $1.1240, . European Style: rand 8.0720, krone 5.6450, SEK 6.6020, forint 224.80, zloty 3.2420, koruna 18.21, RUB 30.78, yen 78.20, sing 1.2740, HKD 7.7715, INR 49.26, China 6.3546, pesos 13.60, BRL 1.7425, dollar index 77.29, Oil $90.76, 10-year 2.05%, Silver $33.43, and Gold. $1,703.30

That's it for today. I have to say that I am so grateful to everyone that sent along the notes about watching or following the World Series, whether they were fans or not. You all are such dear readers to me. and I thank you for reading the Pfennig and sharing your thoughts with me. It was great to get back in the saddle here in the office yesterday. I probably could have stayed home more, but, I can be in pain there, just the same as here! And for those of you who were "moved" by my story about being at the World Series with my sons, thanks for sharing those thoughts too. I can say that now, that the whole thing is over, I'm savoring it more. As my oldest son, Andrew said yesterday when I told him that Tony LaRussa had retired. "Kinda sad, but pretty cool that we got to watch his last game together.... especially considering that it clinched the Series!! And with that. I know that it feels like the trap door was just pulled on us currency holders, but that doesn't stop you from making it a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 11-01-2011 1:00 PM by Chuck Butler
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