U.S. Manufacturing "Unexpectedly Rebounds"?
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In This Issue.

* Rumors say Spain to request assistance.

* RBA cuts rates.

* S. African Gov't bonds get added to an index.

* What ZIRP does to savers.

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

U.S. Manufacturing "Unexpectedly Rebounds"?

Good day. And a Tom Terrific Tuesday to you! One down, one to go! My beloved Cardinals just need to win 1 more game to ensure that they are a presence in the playoffs for the 3rd time in the last 4 years. This is fingernail biting stuff for yours truly, and I had to just go to bed to keep the finger nails that I have intact!

It's fingernail biting for Spain even with the somewhat good results of their recent bank audit. There are rumors going 'round that someone's underground, and that Spain will finally ask for Eurozone help. There's nothing on the docket that would give the Spanish PM an opportunity to formally ask for help, so maybe not today. the euro has not let those rumors get in the way of adding to its gains, albeit minimum gains, VS the dollar. Yes, the euro has gained VS the dollar the past two days, with skinny moves, but positive nonetheless. As I tell people all the time, look at this mess in the Eurozone, doesn't it look like the euro should be trashed? But it's not. at least not so far, so what does that tell you about the dollar?

The Big News overnight was that the Reserve Bank of Australia (RBA) took my suggestion, (I'm sure they all read the Pfennig!) and went ahead and made that rate cut now that was thought to be in the works sometime before year-end. The RBA made certain that they made everyone understand that uncertainty in China is the main reason they cut rates. The Aussie dollar (A$) saw some selling after the rate cut announcement, but in reality, most of the selling and downward movement in the price of the A$ had already taken place, as the markets, (like I always tell you) tried to be ahead of the crowd.

I think you can get a lot of information from the reaction of the A$ to the news. yes, it was sold right after the announcement, but it has rebounded a bit and found a home just above $1.03. That tells me that traders view this rate cut for what it was, bringing forward the rate cut that was expected by year-end, instead of the RBA sending a signal of OMG! The A$ would be still be getting sold, if it was the latter, so. like I said, we can get a lot of information in the way the A$ has traded.

But at the end of the day, folks. you have to wonder if the A$ can maintain these lofty figures above parity, given what the rest of the world is doing to their currencies. I once scoffed at the idea of a currency war, but that was long ago in a far away galaxy. That's when countries like Australia, and Norway and Sweden and Canada were raising their interest rates, and making their currencies more attractive. Those rate hikes are a thing of the past now. You have to question just what is the goal of debasing one's currency just because other countries are debasing their currencies. Like I used to tell my kids, when they would tell me that "but everyone else is doing X" I would say, "but don't you want to be better than everyone else?" I think a few countries that have good fundamentals like the 4 I mentioned above would do well to want to be better than everyone else!

Hey! Like I've told you a couple of times now, the A$ is getting bought by Central Banks around the world, as a diversification to their reserves, so at least it has that underpinning going for it!

You know, I talk a lot about the manipulation that I believe goes on in both Silver and Gold. (we all know it goes on in stocks, can you say QE1, QE2, or QE3? I knew you could!) And yesterday, I sat here and watched Gold soar in the morning moving to +$18 on the day. only to see that wiped out in a matter of minutes! How does that happen? Sure, you could see some profit taking, limit the gains, but to see $18 of gains wiped out in a matter of minutes? I shake my head in disgust. and again, tell you all that the only way we'll see these shenanigans stop is to see truck load on truck load of buying in both physical, Gold & Silver.

I had a reader send me a link to a story on what the write believed to be a manipulation of the price of Oil. Sure, that could happen easily, but at this point, I would have to believe that with the price of Oil around $92, which happens to be close to the total cost of getting it out of the ground and to the refinery, that the manipulation is watered down right now.

Did you see that the South African rand, which has really been beaten up lately, rallied on the news that Citigroup had added South African Government Bonds to the Citigroup World Government Bond Index? This is always news when an asset gets added to an index, which means investors that follow that index have to buy the asset. And when you buy S. African Gov. Bonds, you have to buy the rand to clear the transaction. So, the rand, visa vie the index inclusion gets to rally.

Don't expect this to carry on long though. Usually by the time everyone knows about the new addition to an index, the major buying is over. But, the good news for the rand is that it finally is a part of something that could be an underpinning.

Yesterday, here in the U.S. the data cupboard brought us the news that the U.S. Manufacturing Index (ISM) unexpectedly rebounded in September from August. This was the first expansion of the manufacturing activity in the U.S. since May. For those of you keeping score at home, the September print was 51.5, up from 49.6 in August. But, just when you think the U.S. economy is on the rebound, Construction Spending drops by -.6% in August, marking the second straight monthly decline following the -.4% drop in July.

Don't you find it strange that the manufacturing index "unexpectedly rebounded in September?" I do. We've seen all the regional manufacturing reports come in negative as can be, but when you add it all together it "unexpectedly rebounds?" I can't say it any other way than to just come out and say that it appears to me that the books have been cooked. if I say anything in addition to that, it would sound political, so I'm not going there, no sir! Just move along, these are not the droids we're looking for!

While I'm here in the U.S. this looks like a good place to bring out the Ross Perot card. Remember Ross Perot? Remember how people laughed at his thoughts back in 1992? Well, he pretty much nailed everything that has happened since, way back then. Well, he's made a new statement, that, by the way, is pretty much in line with what I've been saying for years now.

Here's Ross Perot. ""We're on the edge of the cliff, and we have got to start fixing it now. Otherwise, we're leaving a disaster to our children's and our grandchildren's future," he said.

"If we are that weak, just think of who wants to come here first and take us over and the last thing I ever want to see is to see this country, our country taken over because we're so financially weak we can't do anything and we're moving in that direct. . We could even lose our country if we don't get this fixed and straightened out and nobody that's running really talks about it, about what we have to do and why we have to do it. They would prefer not to have it discussed."

You tell 'em Ross! It doesn't matter whether you like him or not, what he's saying is the same stuff I've been saying for 10 years now. our national security is at risk when we have so much debt and have to depend on a country like China to keep us afloat. Think about that for a minute and then you'll see what I'm talking about.

The U.S. data cupboard only has vehicle sales today for us to view, not a market mover, so the focus will be on the Eurozone once again. I saw that Spanish unemployment was some astronomical number, twice the previous month's number (80,000 I believe), but these things shouldn't shock us, for this is what happens when a country is allowed to build up debt, make promises it shouldn't, and then one day finds out that the game of musical chairs it was playing, had the music stop and they were without a chair!

Social unrest like we saw and continue to see in Greece is to be expected, as spending cuts begin to hurt. Now, if we here in the U.S. were to actually cut spending, and not spread it over 10 years, but cut it now to balance our budget, which is what these countries in the Eurozone are attempting to achieve, the social unrest in this country would be the same. I know, I had a reader tell me the other day that he didn't think it would happen, because he believes that Americans have become lazy, and will just accept what the Gov't sticks them with. I don't believe that to be true. For instance. 46 million people (and the number is rising every day) received food stamps. Tell those 46 million people that their food stamps are going to be reduced. I for one, don't even want to think about that!

PIMCO's Bill Gross (the bond king) backed the studies by the Congressional Budget Office, the IMF and Bank for International Settlements that suggest the U.S. needs to cut spending or raise taxes by 11% of GDP, and rather quickly over the next five to 10 years. "Unless we begin to close this gap, then the inevitable result will be that our debt/ GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow, and the dollar would inevitably decline"- Bill Gross..

OK. on to other stuff, for all this is giving me a rash! I'm just one cheery story after another this morning, eh? Sorry. but it is what it is. no reason to cherry top it.

Zero or near zero interest rates, are really beginning to bite! My friend Dennis, sent me this, and it illustrates the problems for savers with a zero interest rate policy or ZIRP as they call it on the street.

It would take $22,000 invested in a taxable money market earning +4.54% (the national average yield 5 years ago in October 2007) to generate $1,000 of taxable income over the course of a year. It would take $3.3 million invested in a taxable money market earning +0.03% (the national average today) to generate $1,000 of taxable income over the course of a year in 2012.

Chuck! You said you were going to get away from the non-cheery stuff, but then you talk about ZIRP? Liar, liar, pants on fire! BTW a great old song from the Castaways!

Then There Was This. from the WSJ. "New York's top prosecutor opened a new front in efforts to hold banks accountable for the financial crisis by filing a civil lawsuit against J.P. Morgan Chase & Co., alleging widespread fraud by the company's Bear Stearns unit in the sale of mortgage-backed securities.

Since 2008, state and federal regulators have launched dozens of probes to determine whether banks broke securities laws or were simply guilty of errors of judgment. Regulators have achieved some record-breaking penalties and investors have secured some significant victories. Bank of America Corp. agreed Friday to pay $2.43 billion to settle claims it misled investors about the acquisition of Merrill Lynch & Co., in the largest shareholder class-action settlement tied to the meltdown. BofA didn't admit wrongdoing."

Chuck again. Hey, don't the regulators have some cards in this game too? They sat there and watched all this going on, and failed to bring enforcement actions in relation to some of the biggest blowups, such as the collapse of Lehman Bros. I just don't think they get to get off scot-free!

To recap. The RBA did go ahead and cut rates last night by 25 Basis Points (1/4%), thus bringing forward the expectation that they would cut rates one more time before year-end. The A$ got sold following the announcement, but has found a home around $1.03. Rumors are all around that Spain will finally formally request Eurozone assistance, but not today, as nothing is on the docket for them to do so. U.S. Manufacturing "unexpectedly rebounded" in Sept from August. Chuck's spider sense is tingling, and suspects some major book cooking!

Currencies today 10/2/12. American Style: A$ $1.0315, kiwi .8325, C$ $1.0180, euro 1.2915, sterling 1.6140, Swiss $1.0670, . European Style: rand 8.3635, krone 5.7005, SEK 6.6045, forint 221.25, zloty 3.1755, koruna 19.3815, RUB 31.08, yen 78.15, sing 1.2290, HKD 7.7545, INR 52.37, China 6.3230, pesos 12.82, BRL 2.0265, Dollar Index 79.74, Oil $92.71, 10-year 1.64%, Silver $34.80, and Gold. $1,778.35

That's it for today. we have a ton of EverBank employees from everywhere in the office today. And they get a special treat when they get to hear me give them my thoughts on World's economies. I'm going to borrow a line from my good friend, the Mogambo Guru, and simply tell them that "we are all freakin' doomed"! Happy Birthday to Dane Moody.. Dane is in our Wealth Management Div, and I've known Dane since he was about 4 or 5. His dad is a very good friend of mine, and one of my spring training traveling buddies! And one of the best cooks at a grill or smoker that I've ever known! I've missed quite a few co-worker birthdays, in recent times, so I apologize for those omissions! Now, let's go out and have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 10-02-2012 10:47 AM by Chuck Butler
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