A Chinese Surprise!
November 18, 2013 · by Chuck Butler
Good day… And a Marvelous Monday to you! I’m still down south, and away from the office, but I did get word that the back half of my travel week was cancelled, so now when I get home, I’ll be there for good, and not have to turn around and leave again. That’s the 2nd time that whole adventure has been cancelled, so maybe, just maybe, it isn’t meant to be! I’ve got some Big News from China to start the day… So, here we go!
Before I get to the Big News, I want to stop to pat myself on the back, not too much, for I don’t want the bursitis to flare up! (HA!) I know, I hear you saying, For What Now Chuck? Ahhh grasshopper, let’s go to the Big News, and I think you’ll see why…
The markets got a BIG surprise on Friday night, that I’m sure will get things going for the global growth countries and their respective currencies… The main document of the Third Plenum was released Friday night.. .The document was titled: The Decisions for Major Issues Concerning Comprehensively Deepening Reforms” and it outlined the major policy reforms (remember I told you last week that we would eventually hear about these?) that will take place soon, which will direct China’s economic developments for the next 5 to 10 years!
In the document, the reforms outlined included China’s top leadership pledging to remove the privileges granted to state owned enterprises, they will remove barriers to competition and use the markets to price factor prices… In addition, the will look to accelerate the deregulation of interest rates and capital flows, lower curbs on foreign investment, and reform the fiscal system by granting local governments the right to issue bonds…
Wow! Talk about sweeping changes! Any questions now about China’s plans to open up their markets further? And help their economy? My friend over at ANZ sent me a note yesterday giving me the low-down on all this, so I thank her!
So, to start the week, the U.S. dollar is weaker across the board, with the global growth currencies doing quite well, as witnessed by the New Zealand dollar / kiwi, which is the best performing currency, overnight. The euro has climbed back to 1.35, and so on… Gold, however, is not basking in the sun provided by China this morning… I received a note from a dear reader last week, that I’ve read and re-read a few times now… I keep telling myself that if I’m such a big conspiracy belief person, then I need to embrace this thought… OK, I’ve left you hanging long enough… The thought is that China is the leader of the price manipulation in Gold, for every time the price of Gold gets whacked, the Chinese back up the truck and buy all the Gold at the cheaper price that they can get their hands on…
So, who, other than China, has an axe to grind in getting Gold cheaper for short periods of time, before physical buying pushes the price higher again? OK… there are a lot of holes in this thought, but in keeping with my “fair and balanced” process, I thought I might throw this out there, as an alternative to always pointing toward the U.S. Gov’t as the architects of Gold price manipulation… I’m not buying the China thought regarding manipulation, for I have too much evidence to overcome…
OK, back to reality… I think that we could very well see a somewhat quiet week, as opposed to the previous two weeks, with the Central Bank meetings, Yellen talks, and other things that made the trading choppy at best. The U.S. data cupboard has a couple of things for us this week, but nothing to get the markets all lathered up. For instance, today, we’ll see the U.S. Homebuilder confidence report… I think that the report will show some that the Housing rebound is beginning to run out of gas…
On Wednesday, we’ll see Retail Sales, which could very well be a market moving report. But, by Wednesday, who knows what the markets will be feeling, if anything! The Butler Household Index (BHI) tells me that Retail Sales for October should print a disappointing result. That won’t play well in the sandbox with the tapering now crowd… But then they should be in a foul mood, given the Yellen comments last week. I already spent a ton of time talking about the Yellen comments in the Pfennig last week, but for those of you who missed class, I suggest you go to the Pfennig website: www.dailypfennig.com and read Thursday & Friday’s Pfennig, and you’ll see what I’m talking about!
As I look around the world for things that could be interesting this week, I see that the Reserve Bank of Australia (RBA) Gov. Stevens, is going to be speaking this week on “The Australian Dollar: Thirty Years of Floating”… Well, Happy Birthday to the Aussie dollar (A$)! I recall back in 1992 (21 years ago) I was the foreign bond trader at Mark Twain Bank, and I did so much reading (still do!) to find markets that looked interesting, under-priced and ready to explode higher… I made a recommendation to the guys on the desk that we look more closely at the A$ and kiwi… I was told by our senior sales guy, that, “those markets are too small to deal in”… But I persisted, and soon everyone jumped on my bandwagon, and the rest, as they say, is history!
In Canada this week, we’ll see some 2nd Tier data, and that’s about it… I do expect the Canadian dollar / loonie to hang on to the coattails of the A$ and kiwi this week and continue to recapture ground that was lost in the last two weeks of volatility. Bank of Canada (BOC) Gov. Poloz has been very quiet lately… I’m sure he’s like Snidely Whiplash, and thinking of a new way to tie the loonie to the tracks! HA! As you can tell, I’m no fan of Poloz, so far that is… I think the BOC made a Big Mistake when they appointed Poloz as Gov., as I see him for what his true colors are… A promoter of trade, through a weaker currency…
We have a couple of Fed Heads speaking today, Dudley and Plosser, will speak and try not to give any hints as to what they are thinking regarding Quantitative Easing and Tapering… Then Big Ben Bernanke will speak tomorrow, and the markets will come to a halt as they focus on every and, but, ahem, and whatnot from Bernanke…
I told you last week that I’m currently reading Jim Rogers new book, Street Smarts… And Jim is no fan of Bernanke, or Greenspan, but he expresses his dislike for these gentlemen in a very nice way! Of course there are lot of people that are famous and connected to the markets that Jim does not hold in high regard, so no reason to think he’s singled out Big Ben or Big Al!
Getting back to the euro for a minute… There was no significant progress on a banking union at the Eurogroup and Econfin, last week. Germany continues to be the roadblock here, folks… And you can understand why, right? I mean, Germany enjoys low borrowing rates when they go to the markets, but if their borrowing requirements (bond issuance) were thrown in with all the “other Eurozone countries” the borrowing rates would not remain low… But, as I said from the get-go on the Eurozone debt debacle 3 years ago… The Eurozone needs a Eurozone bond, the member countries have already given up their sovereignty when they converted their respective currencies to euros in 1999… Might as well go to a unified bond, and nip this problem in the bud, right here, right now…
Did they listen? Of course not! And this is still a bugaboo for the Germans… They will eventually be dragged, kicking and screaming, with arms and legs going every which way, to a unified bond structure, for it was Germany, and former Chancellor Helmut Kohl that forced the euro on everyone, so the euro benefits Germany, big time, they won’t upset this applecart all the way, that is!
The IMM Futures Positions last week, showed another increase in dollar long positions… This adding to dollar long positions has been going on for about a month now… The only two currencies that bucked the trend VS the dollar was kiwi and Mexican pesos… But, as I always remind you, these Futures Positions can change in a NY minute… they are a good measure or indicator of what the traders’ pulses are, but they don’t last… They’re not trend changing, for they are not fundamentals!
Our Sunday Pfennig & Pfriends last week had some good insight on what we see coming for the Christmas Shopping Season here in the U.S. The one thing that I would add to that message of disappointment for the Retailers, is that either the U.S. consumer goes into debt further, with their Christmas shopping or, they spend what savings they have… let’s see, Oh, that’s right! There are no savings! So… a charging we will shop! I think that consumers maybe still feel the pain of the last time they went hog wild on shopping with credit cards, or at least, they are still paying those cards off!
You know, not having any savings is a problem that the U.S. Gov’t suffers from too, but their lack of savings is on a much larger scale! I’ve been telling you for years now, that our national security will eventually be compromised because of our debt levels, I just don’t understand why the markets don’t see it that way… But they will… eventually…
Yes, we had debt levels that were high before in the U.S., and we grew our way out from those debts… But we had savings then, and we were able to do things that brought about a stronger nation… There’s a BIG difference between then and now, folks… And now, isn’t getting any prettier for the dollar.
I just can’t point out how excited the markets are regarding the announcement from China Friday night … First the markets were disappointed that the communiqué following China’s Third Plenum didn’t have what they were looking for… But now, it’s all seashells and balloons, peaches and cream, sunshine and rainbows.. Well, sort of…
You see, as I’ve explained to you before, China is going to have setbacks along the way, recessions and other things that happen to an economy. The markets need to “calm down” when these things crop up, for they are normal! We don’t need to go all Chicken Little every time China’s economy slows down!
Before I go to the Big Finish… Tomorrow will be the 150th anniversary of the Gettysburg Address… I remember in 8th grade, we had to recite by memory in front of the class this address… Whew! Glad I got through that!
For What It’s Worth… OK, so there I was, sitting outside, with my cup of coffee reading the Sunday paper yesterday morning, and I came across something in the Palm Beach Post…. Check this out… it’s a quote from Senator Kent Conrad D-N.D.
“The largest threat to our national security is our economic vulnerability. We have engaged in a policy of debt, deficit and decline over the last decade. We’ve tripled the national debt. We’ve gone from being the largest creditor nation in the world to the largest debtor nation in the world.”
Chuck again… OK.. here’s the catch! Those comments were made in 1988, when the debate was over raising the debt limit to $3.12 Trillion. We all know that now the national debt is over $17 Trillion! If Mr. Conrad was up in arms at $3.12 Trillion, imagine what he would think about $17 Trillion? And don’t forget, the debate to decide whether the debt limit is increased again will come due next month! OH BOY! Now that should be full of the Christmas spirit! NOT!
To recap… The Chinese surprised the markets Friday Night, by issuing a report that contained the reforms that the Chinese have pledged to make that will change the Chinese economy and markets for the next 5 to 10 years! This is the stuff the markets were looking for last week at the conclusion of the Chinese Third Plenum, but were made to wait a few days… This news has the currencies, especially the global growth currencies, back on the rally tracks VS the dollar today.
Currencies today 11/18/13… American Style: A$ .9405, kiwi .8380, C$ .9605, euro 1.3515, sterling 1.6105, Swiss $1.0965… European Style: rand 10.1025, krone 6.1210, SEK 6.6025, forint 219.90, zloty 3.0915, koruna 20.0775, RUB 32.52, yen 100.10, sing 1.2455, HKD 7.7530, INR 62.41, China 6.1332, pesos12.89, BRL 2.2855, Dollar Index 80.71, Oil $93.51, 10-year 2.70%, Silver $20.63, Platinum $1,432.30, Palladium $726.33, and Gold…. $1,283.20
That’s it for today… Well, my oldest son, Andrew, and his Lindbergh Flyers Swim Team finished 17th in the state swimming finals this past weekend… Not their best finish, but one that I’m sure he’s quite proud of his swimmers for their efforts. Kathy and I had a nice lunch on Friday with a friend of ours.. .Thanks Sharon! And we’re going to visit a friend this afternoon that has moved down here about 30 minutes north of us. The Rams were off this weekend, and our Blues split a pair of games… My beloved Missouri Tigers were also off this weekend. And yes, college basketball season has begun, but I can’t get into that until the regular season of football has finished! I’m going to attempt to talk Mike into taking the conn on the Pfennig tomorrow, as it’s a travel day for me… So, if that works out, I’ll talk to you again on Wednesday! I hope you have a Marvelous Monday!
EverBank World Markets
Editor: A Pfennig For Your Thoughts
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