Will There Be More Stimulus from the FOMC Meeting?

Yesterday, I got all caught up with what Chris had to say last week, and let me stop here to say a BIG “Thank You” to Chris for taking the conn on the Pfennig last week… A great job as usual! Chris did leave me a few notes on the Friday happenings, and that helped me get the “motor” started to write this morning!

First of all, you should know that the currencies, with a couple of exceptions, rallied along with gold versus the dollar on Friday… The starter’s gun to begin the rally versus the dollar was the Jobs Jamboree… The markets saw it for what it was, and that is… disappointing… For once they weren’t swayed by the talking heads on TV… Here’s Chris’ thoughts on the Jobs Jamboree…

“On a final note, I was amused by the way the media tried to spin the jobs data. Just about every story I read mentioned ‘private payroll’ numbers which showed a gain of 71,000 workers. The media explained that these number more closely reflected what was going on in the labor market, encouraging investors to ignore the overall employment numbers which fell by 131,000. The difference? A couple hundred thousand temporary census workers who were dismissed. So where were these spin doctors when the jobs numbers were being inflated by the HIRING of these temporary workers?”

OK… I also read yesterday that Chris had called what was going on last week a “fundamental shift” away from the way the markets had been treating “bad data” in the US When I read that, I thought to myself, Good to see Chris and I are in agreement on this, as I had said in the July 29 Pfennig… “First things first… Well… We’ve got a huge shift going on right here in front of our eyes, folks… The momentum has shifted toward selling dollars, based on the fears that the US nascent recovery is failing…”

When I turned on the currency screens this morning, the euro (EUR) was 1.3280, and Aussie dollars (AUD) were 92-cents versus the dollar. I’m watching some slippage right now, but nothing earth-shattering, so maybe it’s just “noise” and not a big move coming our way.

Now… There’s a ton of data in the data cupboard to share with everyone this week, but the thing I’ll be looking for is the statement by the cartel, after the FOMC rate announcement tomorrow afternoon. Yes, the cartel will keep rates at historic lows, that’s a given. The thing to really look for is the statement following the announcement. Personally, I don’t think the cartel will announce more quantitative easing (QE) tomorrow… Think about that, the recent data has been disappointing, and the Fed announces more QE… Wouldn’t that look like it is running scared? I think it’ll wait for a more opportune time when it can attempt to slip the announcement under the cover of darkness…

But… It’s coming folks… More stimulus, just like I told you the cartel would feel it need to provide… And speaking of things I told you… With the cartel keeping rates at historic lows, where are all the pundits that told you six months ago that the interest rates here in the US would be going higher by now? Of course, I told you they wouldn’t be going higher… It felt lonely out there on the limb at that time, but sometimes, I prefer it that way!

Let me take you back to March of 2009… The cartel announces its first round of QE, and the dollar immediately loses its shine, and not long after the announcement, the dollar falls through its 200-day moving average. I had taken a break from spring training, and visited my publisher, Erika Nolan,for my subscriber-based newsletter in Delray Beach. We talked at length about the bad things that QE brings to a currency… And it did then in March of 2009, and it will again, folks…

I mean, think about this for a minute… There’s all this talk about QE going back a couple of weeks now. You may recall that St. Louis Cartel president, Bullard, talked about the need for more QE, and so on… And what has the dollar done since the QE talk began? It has taken a ride on the slippery slope down, once again… Trust me, the rally last week had nothing to do with me being “away”… It’s all tied to the bad prospects of the US economy, and the need for more QE…

Chris left me a note about the Norwegian krone (NOK)… And he mentioned last week that the price of oil was moving higher again, and it would not only help the Canadian dollar/loonie, (CAD) but the Norwegian krone, and even the British pound sterling (GBP)… I took special interest in the note about the krone, for the krone has been one of my fave currencies for years now… The strong fundamentals of Norway remain a few notches above everyone else… Remember when Time had on the cover of the magazine the statement that the Norwegian krone was the “safest currency in the World”?

And… Looky there! The Norwegian krone is the best performing “major currency” in the world for the past month! I always knew that once “fundamentals” returned to the markets, the krone would once again be “in play”…

Oh! And the price of oil is screaming higher, and higher… And don’t forget that higher oil prices also benefit the Russian ruble (RUB), a part of the BRIC contingent…

In another sign that the “Eurozone debt crisis” has been put in the rear-view mirror (for now)… You might recall that about a month or so ago, I talked about how the Chinese had bought a huge chunk of Japanese Govnerment Bonds (JGB’s) and that I did not see it as a “vote of confidence” in Japan by the Chinese, but more of a not wanting to risk buying euros during the debt crisis… Well, last month, China became a net seller of JGB’s… Just another sign folks… But the wolf is still around the Eurozone’s door…

Chris also left me a note on Canada… “Two of the biggest losers vs. the US$ were our immediate neighbors, the Canadian dollar and Mexican peso. (MXN) The reason for the selloff is fairly simple; both of these countries count on the US for a majority of their trade. If the US is going to be trailing the rest of the world out of the economic slowdown, then those countries which count on the US for a majority of their trade will have to work to find new markets. I feel the selloff in the Mexican peso is probably justified, but Canada is a different story. Our neighbors to the North have established strong trade ties with Asia (they had no choice as China has invested heavily into their natural resource companies). Russia’s halting of wheat exports should also give a boost to the loonie, as the western provinces produce huge amounts of wheat.”

You get thoughts from both of us today! All for that special price! HA!

So I mentioned above that we will see a ton of data this week… We might as well touch on all of it, so there are no surprises later in the week, when I talk about a data print…

We start the week out slow, but build to a crescendo! Tomorrow, the Big Kahuna is the FOMC meeting in the afternoon. But first, we’ll see tomorrow morning, the stupid productivity report for the second quarter, and Wholesale Inventories for June. Wednesday, we get the double-whammy of the trade deficit, and the monthly budget deficit… Thursday, Initial Jobless Claims, and the stupid CPI, and closing the week with retail sales, business inventories and the University of Michigan Consumer Confidence…

So… Get your number-two pencil sharpened, and your notebooks out, so you can properly record the results of all this data!

Then there was this… Remember when I told you about the plan that the US was discussing about personal IRA’s? Remember? The rumor was that the US would convert IRA’s and 401K savings accounts, and require that only US Treasuries could be bought… Well… Apparently that rumor is gaining teeth, according to Assistant Labor Secretary Phyllis C. Borz, and could be discussed as early as next week…

Hey! China doesn’t want our Treasuries yielding less than 3% (ten-years) so why would we? Besides, if I’ve said this once, I’ve said it one hundred times… Treasuries are the biggest bubble, and continue to be inflated…. You had better let your senator or representative know if you are against this “conversion”…

Speaking of number-two pencils… How’s your daily journal going? Don’t remember what I’m talking about? About nine months ago, I told you all that you should be keeping a daily journal of all the changes going on in this country, so that one day, you’ll be able to properly explain to your grandkids what happened…

To recap… The currencies, for the most part, had a nice rally on Friday, after the disappointing Jobs Jamboree, but are range-bound this morning, with some minor slippage versus the dollar. The Big Kahuna this week is the FOMC meeting tomorrow afternoon, and whether or not the cartel announces more stimulus in the form of quantitative easing. There’s a ton of data to sift through this week, and the price of oil is screaming higher!

Chuck Butler
for The Daily Reckoning

The Daily Reckoning