Fed Heads For Prolonging QE!
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In This Issue.

* Currency & metals rally fades on Monday.

* RBA Gov deep sixes the A$, again!.

* China's Third Plenum begins.

* Chuck asks, "don't you want to be better?" .

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

Fed Heads For Prolonging QE!

Good day. And a Tom Terrific Tuesday to you! Oh Brother, did I ever have a clock faux pas this morning! Waking up, what I thought to be one-half hour early, I decided it wasn't worth going back to sleep so I got up and began to get ready, when I looked at my cell phone for the temperature outside, I noticed that I had really woken up 1 & ½- hour early! Now THAT would have been worth going back to sleep for! But NOOOOOO! I was all revved up and ready to go, only it was waaaaaaaaaayyyyyyy too early! So. Here I am! And just knowing that I got up that early has me dragging the line! See, It's all in the head!

The mini-rally that the currencies and metals were attempting to put into the books yesterday, faded as the day progressed. Remember last week when the Eurozone inflation data printed and I told you that the pressure on the euro would be revived because the markets will take the inflation data as an indication of the European Central Bank (ECB) cutting rates. I then went into my tirade about how interest rates in the Eurozone are already low, and cutting them at this level, isn't going to go anything for the economy, just ask the U.S. and Japan. Well, the markets have decided today that a rate cut is in the cards and are taking the euro to the woodshed.

And this morning, that rate cut thought for the Eurozone is more important to the markets, than the 3 Fed Heads that all talked about prolonging Quantitative Easing / QE yesterday. Fed Heads, Powell, Rosengren, and Bullard all indicated that they are good with continuing QE yesterday in separate speeches.

You know how I always tell you that the IMM Positions report that comes out each week, but that the positions can change in a heartbeat? Well, we saw that with the IMM Positions report that printed late last week from the previous week, being delayed due to the disruptions in D.C. last month. That report showed that the net long positions in euros were at levels last seen May 2011! But late last week after the inflation report and the FOMC statement the euro got sold like funnel cakes at a state fair, so obviously, when the next IMM Positions report prints, euros won't hold that lofty of a position any longer.

Last night, the Reserve Bank of Australia (RBA) met and kept rates unchanged, as I suspected they would. But then RBA Gov. Stevens decided to deep six the Aussie dollar (A$), when he said that, "the currency is uncomfortably high". I don't know why the markets react so violently like this whenever a Central Banker decides to verbally assault his own currency. It is just verbal, right? He didn't cut rates, nor did the RBA even consider cutting rates. But this last statement by Stevens, quickly reminded the markets of what he said last week, when he said that the "currency may become materially weaker". When will these Central Bankers ever just leave currency values to the markets to decide?

OK. Back to the Fed Heads for a minute, and one in particular. Well, there I was yesterday morning, on a conference call with the other members of our EverBank Economic Roundtable. And someone mentioned to me that St. Louis Fed President, James Bullard, was just on CNBC and had said that, "Quantitative Easing is a very reasonable thing to do to substitute for the fact that you can't lower interest rates any further." Can you believe he said that? OK. then he went to talk about the Fed's Balance Sheet, which is approaching $4 Trillion.

"If you look at the size of the balance sheet relative to GDP, who's got the biggest one, Japan, Europe, U.K. or U.S.? We're fourth out of those guys, if something bad is going to happen with balance sheet, these other central banks should have passed that and already had that experience and they haven't."

I was then asked what I thought of that statement, and I replied. "Well, it's a lot like when my older kids were younger, and they would always say things like, "But all the other kids are doing "x" I would answer them by saying, "yes, but don't you want to be better than all the other kids?"

Why would we as U.S. citizens care what Japan, or anyone else does to their balance sheet, and in the end to their currency? We should never go down that path!

In addition. I would take issue with how he framed that comparison to the Eurozone. In case he hasn't seen the data, the ECB's balance sheet has been shrinking. That's going in an opposite direction of the Fed's balance sheet, folks. And I'm sure that James Bullard know that, and that's why he framed the comparison the way he did.

OK. Let's leave that right there, and move on to other stuff. Things are going to heat up later this week in the U.S. and China. First let's talk about China. The Chinese data flow is heavy into the end of this week, with trade, inflation and industrial production due for release. I think that the closely watched iron ore imports could stage another positive showing after posting a record amount in September.

This will be important in that China's Third Plenum begins this week, ending next week. The Third Plenum is a gathering and celebration of China's Communist Party. I truly feel that new Chinese leader Xi, is going to push the Communists Leaders to adopt a program of economic reforms, that could include: liberalizing interest rates, opening up the renminbi capital account and let the renminbi partially float. over the next 3 years. These reforms are all needed badly to insure the Chinese economy continues to expand, and open up to more markets, and with strong data going into the meeting, Xi will be able to point out how previous reforms are working.

I told you yesterday that the U.S. data cupboard was taking a break this week, but that wasn't completely right, in that the Jobs Jamboree will finish the week for us data-wise. How could I have missed seeing that on the calendar? Well, maybe I just decided to not pay attention to it, because of my dislike of the way the Bureau of Labor Statistics (BLS) cooks the books with labor data. Oh well, while that's true, I can't let it get in the way of reporting what's going on! So, anyway, the heat will get turned up on the data cupboard on Friday this week.

Gold is down $2 this morning, after pretty much spending the day flat yesterday. All this talk of returning to the Taper Capers has Gold walking on eggshells these days. I really don't know why the markets are so wrapped up in the thought that the Fed might taper in December, but they are. And that has the dollar with a bias to buy, and the currencies and metals on the other side of the ledger. But, as I've said here a few times now, I don't see it. I don't see the Fed entering into Tapering until the economy shows signs of being able to stand on its own two feet. And I believe we're a far ways from seeing that!

The New Zealand dollar / kiwi is the best performing currency overnight, posting a gain while most of the other currencies are showing losses this morning. The 3rd QTR Employment Numbers for New Zealand will print this afternoon (tomorrow for them) and I think the kiwi participants are anticipating a strong number which is why they marked up kiwi overnight. You see, the skinny on this data is that it is historically volatile, and when it's volatile good, kiwi rallies and when its volatile bad, kiwi sells off. Sort of reminds me of that great old song by Grand Funk Railroad, that had lyrics like this. I think there are more people that are bad than there are good. And if you're good, you'll live forever, And if you're bad, you'll die when you die.

Two other currencies are eking out gains this morning. the Odd Couple for sure. Swedish krona and Japanese yen. For completely opposite reasons I'm sure, as Japan's fundamentals are so out of whack, while Sweden has its ducks all in a line.

The U.S. data cupboard is pretty bare today, so, all the talk about Taper Capers will be the rage today. UGH! That's like talking about pet rocks as far as I'm concerned. Remember pet rocks? Talk about something really stupid. Well, that's what the Tapering talks are.

I read a lot of stuff this past weekend. I read an interview with Andrew Maguire, Grant Williams, and several others. I suggest you should Google these guys and read what they're saying. I'm just saying. And James Rickards has a new book out, that I can't wait to get my hands on. It's a follow up to his best seller: Currency Wars.

For What It's Worth. Yesterday, I went on a tirade about the debt in the country, and the unfunded liabilities, then a dear reader sent me a link to an article on: www.whiteoutpress.com and it got me thinking about something that, quite frankly, I hadn't thought of.

Basically, the Fed Heads own about $2 Trillion in Treasuries. That's $2 Trillion that was used to help finance the $17 Trillion debt. Since the Fed printed the money in the first place to buy the Treasuries, they should just forgive the U.S. on that debt, and not pay them back. Now that wouldn't wipe out the $17 Trillion or even make a dent in the $126 Trillion in Unfunded Liabilities, but it would give the country some breathing room under the $17 Trillion debt ceiling level. That would delay the eventual default that the U.S. will face at some point in the future.

Unfortunately, as with all things there would be unintended consequences to this plan. And it would involve the other $15 Trillion in debt that other's are holding. How are they going to feel when they hear that the U.S. didn't have to pay off $2 Trillion of their debt? Well, they won't be feeling a warm and fuzzy folks. Instead, they'll probably begin to feel their collars begin to tighten, the sweat roll off their foreheads, and their stomachs become very queasy. For what happens to their holdings if the U.S. likes this idea, and looks to see who else wants to turn in their bonds without receiving payment? You know voluntarily, of course! No arm twisting, just because the U.S. has the largest and strongest military. wink, wink.

It's all Monopoly money folks. And when the Chinese decide that they no longer want to accept Monopoly money, but would rather take something of "value" instead, that will be the real dilemma for the U.S. and then, and only then, will those that said that "deficits don't matter" will choke on those words.

Chuck again. Not that I was gone or anything! The Fed's bond buying, (QE) has them buying $40 Billion in Treasuries each month, and $45 Billion in mortgage backed bonds. This is what has brought about the explosion in the Fed's Monetary Base, that James Bullard is so comfortable with.

To recap. The currency and metals rally faded throughout Monday, and only a few currencies are eking out gains VS the dollar this morning, while Gold loses $2 in early morning trading. RBA Gov. followed up last week's deep-sixing of the A$, with another attempt to weaken the currency, while 3 Fed Heads all talked about prolonging QE with different takes as to why. Bullard compares the U.S. monetary base to other countries. Doesn't he want to be better than those countries? I guess not.

Currencies today 11/5/13. American Style: A$ .9510, kiwi .8320, C$ .9585, euro 1.3490, sterling 1.6050, Swiss $1.0970, . European Style: rand 10.2280, krone 5.9765, SEK 6.5190, forint 219.70, zloty 3.0975, koruna 19.1475, RUB 32.39, yen 98.30, sing 1.2415, HKD 7.7515, INR 61.65, China 6.1447, pesos 13.04, BRL 2.2545, Dollar Index 80.57, Oil $94.54, 10-year 2.61%, Silver $21.66, Platinum $1,451.00, Palladium $744.38, and Gold. $1,312.57

That's it for today. I visited my local oncologist yesterday afternoon, he repeated what they told me at MD Anderson in September. that I'm "stable". I would not like to have his job. a cancer doctor. There are few too many "good stories", although with today's medicine, and how medicine for cancer is evolving, maybe the "good stories" will become the norm! Whenever I meet a cancer survivor, I congratulate them, for it takes one to know what that person has gone through to get where they are! Well, my fantasy football season went into the circular bin last night when my quarterback, Aaron Rodgers, got injured. Sure I hope he'll be OK, but my chance of winning any more games this year, went down with him to the turf at Lambeau Field. So, I made a $50 contribution to the league this year. Well, I stalled out enough on writing this morning, so now I can send it off for review, and get it out closer to regular time.I'm sitting here listening to Alvin Lee & 10 Years After playing, I'd Love to Change The World. I hope you have a Tom Terrific Tuesday.

Chuck Butler
EverBank World Markets

Posted 11-05-2013 1:12 PM by Chuck Butler
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