Wen: We Will Provide Greater Flexibility.
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In This Issue.

* A Risk Off, or Dollar day.

* ECB says "nein" to being more like the Fed.

* Even Gold & renminbi are weaker today.

* DSC is rumored to be ready to admit failure.

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

Wen: We Will Provide Greater Flexibility.

Good day. And a Marvelous Monday to you! It's Thanksgiving Week! And on Friday, the Christmas shopping season begins! Well, it's Christmas for me. I know I speak to different religions, so, I don't want to offend anyone, but. Since it's Christmas for me, that's what I'll talk about! I got to spend some time with a nephew this weekend that I haven't seen in a very, very long time. more on that in the Big Finish.

Well, we're starting this Thanksgiving Week on a bad foot for the risk assets. As I look at the currency screens There is only the Japanese yen that's staying afloat, while everything else, including Gold, and Chinese renminbi are searching for their floaties! The euro and Aussie dollar are down 1-cent, Gold is down -$20, and Silver is down -$1.15. It's ugly out there today.

So, what's got the risk aversion campers all lathered up this morning? It's not the Spanish elections, for it was a landslide victory for the opposition party that ran on an Austerity platform. One would think that going into the last 3 days for the Debt Super Committee (DSC) without any plan would have dollar bugs heading for shelter, but not yet, I guess. There's still time for an 11-hour agreement. But, as I told you a month ago, and several times since, I seriously doubt an agreement on $1.2 Trillion of spending cuts will come of this DSC.

What I think has the dollar bugs all lathered up, is the news from the Eurozone on Saturday, where European Central Bank (ECB) President Mario Draghi, said the "ECB needs to stick with its primary role of maintaining price stability or it will lose its credibility."

Hmmm. is that the same price stability you had in mind when you cut interest rates earlier this month? Come on Draghi, I know that you are new to the job, but don't take us as stupid. Providing price stability and cutting interest rates are at the opposite ends of the pole. But you are correct, and this is something I think I talked about last week, and that is. Should the ECB accept a larger role in the debt mess, and become more like the Fed, their credibility would be shot!

And then the dollar rally could just be window dressing for Thanksgiving Week. When we're sitting at our dinner tables on Thursday, and bow our heads to give thanks, we don't want to say, "and we give thanks to our leaders who have reduced the value of our currency, which ruins our buying power, and makes things more expensive." No. we don't want to say that! Of course, and all my buddies would agree, that only at MY House, would that be discussed!

The U.S. economy received some good news on Friday. Leading Indicators, which is exactly what this data does, were stronger in October. Today, we'll see more rot on the housing vine, when Existing Home Sales for October print, and are expected to fall -2.2%... A couple of months ago, observers thought that housing had bottomed, but that turned out to be a false dawn, and the bottom searching for Housing continues.

So. I read this morning, that the Debt Super Committee (DSC) is about to raise the white flag, and admit failure. Sure seems to have been a waste of time to me. For, when they do raise the white flag, it simply means that $1.2 Trillion of discretionary spending cuts take place. So, they DSC always knew that failure was their main option, and one that it looks like they will accept. OK. I've made my call that there's no way the so-called automatic spending cuts of $1.2 Trillion get implemented. And when that happens the ratings agencies will begin to mark down the U.S. credit rating. But what do you think? Do you think there is political will to cut $1.2 Trillion of discretionary spending? And. raising taxes is increasing the revenue, that's not cutting spending. Although, I've long said that taxes rates would have to eventually rise, not that I want to see that, but figure, more revenue will be needed in the future to finance the debt servicing (bond interest).

But. all that bad stuff, just might have the reverse effect for the currencies, and see a flight to so-called safety. A flight to safety to me, would be to Gold or renminbi. not dollars, and certainly not U.S. Treasuries!

A couple of months ago, I told you that the perfect storm was building for a period of dollar strength. So far, that has held true.

Commodity prices haven't exactly been on top their games either lately. Oil popped up over $100 last week, but that didn't last long, and is back to $95 this morning. The overall feel for the global economy is that everything is going to be at a much slower pace going forward, and that kind of thinking deep sixes Commodities. Copper, for instance has seen three consecutive days of selling.

So. it's all about the dollar, that has a lager debt than anyone, has a housing sector that's still searching for a bottom, and has unemployment of 23%... Makes you wonder. and not who wrote the book of love! But, makes you wonder, why Gold isn't going to the moon right now. Euros? No way!, Dollars? No way!, Yen? No way! U.S. Treasuries? Double no way! But Gold? Back up the truck! I know I have told you all since about $700 to buy Gold on dips. well, I see Gold is barely holding on to $1,700 this morning. a dip below $1,700 and I will certainly be looking to buy more.

OK. I've mentioned U.S. Treasuries a couple of times this morning, and not in a glowing way, eh? Well. I just don't see how owning 10-year or long bonds makes any sense, given the low yields, that have nowhere to go but up, thus causing a loss. face the facts folks. The Fed has backed itself into a corner, and the corner has a trap that could be sprung, should the Fed raise interest rates. For if they did that, not only would the Gov. have to increase the debt servicing on new issues (bond interest), but would severely damage a teetering economy.

So, stop to think about that for a minute. We all know that the debt needs to be financed, we learned that a long time ago. and the tool that's used to finance the debt? U.S. Treasuries, so. if the debt keeps growing, which I showed you last week would be over $20 Trillion by 2015, if we did nothing, more Treasuries will have to be issued, and not just replacements for maturing issues. additional supply. and that only dilutes the supply already issued! And, as I said, for those additional issues, AND the replacement issues, they would have the higher yields, thus costing the Gov't Billions more in debt service.

So. yields aren't going anywhere soon, and when they do, they'll explode higher, because the markets will demand it, like they have done in the Eurozone.

Everything I read, about the markets comes back to the Eurozone. No one, says, "well, the Eurozone is a mess, but we've got our own problems to worry about." Instead, everyone says, "the U.S. is holding its own, but there are storm clouds coming from Europe" or something to that effect. It's always somebody else's fault, eh?

Speaking of placing blame on someone else. The Chinese renminbi is weaker today, and I find that a bit strange given the comments over the weekend by Chinese Premier, Wen Jiabao, who told the U.S. President during his visit, that he pledged to increase the flexibility of the renminbi and push forward renminbi reform. Hmmm. Ok. as my dad used to tell me. Money talks, and bull.. Walks. So, what's it gonna be? Probably business as usual. which means, tell the U.S. leaders what they want to hear, and then go about your business as if nothing changed once they leave. And that means slow, steady appreciation of the renminbi VS the dollar.

Then there was this. from The Economist, titled: Grim Holiday Season Awaits Most U.S. Retailers. "Mostly because U.S. households together lost $13 trillion in assets in 2008 and have regained little, this will a bad holiday season for most retailers, according to The Economist. Stores catering to the rich will do well, but that's about it. "Yet there is a silver lining this Thanksgiving even for struggling middle-market shops," the magazine notes. "Most retailers are better prepared financially to withstand a disappointing holiday season than they were two or three years ago."

Chuck again. Yes, I thought with the Christmas shopping season beginning on Friday, that this story was interesting. But when you have 23% unemployment, and a stagnate economy, it's probably best that we, as consumers, don't go overboard with spending!

To recap. It's all about the dollar this morning. The dollar bugs are all lathered up and getting ready for Thanksgiving! Gold is down $20, and renminbi is down, thus making it officially a "dollar day". U.S. leading indicators for October were very strong, thus indicating a better economy in the future for the U.S. Of course that data could very well turn around next month!

Currencies today, 11/21/11. American Style: A$ .9880, kiwi .75, C$ .9660, euro 1.3440, sterling 1.5655, Swiss $1.0870, . European Style: rand 8.3155, krone 5.8210, SEK 6.8280, forint 228.55, zloty 3.3075, koruna 19.0320, RUB 31.07, yen 76.85, sing 1.3035, HKD 7.7890, INR 52.14, China 6.36, pesos 13.95, BRL 1.8060, dollar index 78.44, Oil $95.77, 10-year 1.95%, Silver $31.02, and Gold. $1,701.75

That's it for today. Well. I got to see all my siblings this weekend, and their kids. I also got to catch up with my deceased sister's son, Charlie. We went to the country together yesterday, to visit his mother's grave. I hadn't seen Charlie in a very long time, Brenda, his mom, would be proud of him. Charlie is married to a lovely young lady named Jamie, and live near New Orleans, where he is a deep sea diver on oil rigs. pretty amazing stories. The wedding of one of my nephews brought us all together, and that was good. Shoot! My glasses just fell apart! OK. I've taped them back together, nerd alert, nerd alert! I needed a new prescription for my remaining eye anyway, so now I've got to do that, and get new glasses! It's a short week for me, so I'm looking forward to vegging out in front of the TV on Friday, watching college football! OK. now, let's go have a Marvelous Monday!

Chuck Butler


EverBank World Markets



Posted 11-21-2011 8:45 AM by Chuck Butler
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