Thursday, November 07, 2013, 2013Hitchhiker's VUE

US

GDP printed way better than expected.  The consensus was for a 2.0% growth and actual was 2.8%.  In this day and age, the market may decide this good news is bad news.  This is one more data point for the Federal Reserve that points to tapering soon.  No wait: Business growth slowed sharply, validating the Feds decision to stick with $85 billion monthly QE.  By contributions to growth, it was a mix. PCEs rose an annualized 1.5 percent, contributing 1.04 percentage points to GDP. Inventories gained $86.0 billion, following a $56.6 billion increase in the second quarter-leading to a third quarter contribution of 0.83 percentage points.  In general, demand is falling off the table, and inventories are building up.   These are all mixed signals, and anything may happen in the markets today.

US Jobless claims report was released.  It shows that jobless claims are coming down.  Continuing claims however are steady (to slightly increased).  Overall, since September the trend is slightly down.  We also have part time Xmas jobs that will be offered in November and December, which should continue the small down turn in jobless claims.  Also, ObamaCare workers in every state are being added (paid for by the taxpayer - are we not lucky?).  This is mixed news for the Federal Reserve.  The Feds are not really looking at this report (to anyone's knowledge in the normal world).  The look at Unemployment Rate released by BLS (Bureau of Labor Statistics) tomorrow.  It is expected that tomorrow's report will show a 7.3% unemployed.

Twitter:  The market is frothing over Twitter's IPO.  So what? Day Traders are just sure the market will gain volatility with Twitter IPO. 

As of this writing, the dollar index is making significant gains after the ECB cut rates.  I was slightly wrong in suggesting that Draghi would hold rates steady.  I told you that the ECB was setting up for a rate cut when they started talking about how low inflation was.   Most of the currencies in the free market (not China) follow the Euro.  If the Euro gains, so do they.  If the Euro falls (against the dollar) so go the others (even Canada).   The justification for this rate cut was they do not want the Euro Zone recovery to stall.

Jim Jubak has an interesting point http://money.msn.com/investing/the-fed-has-no-endgame on the research papers being published by the Federal Reserve. 

"The consensus now says this tapering won't begin until March 2014 at the soonest, although the Fed's press release after the October meeting of its Open Market Committee led to a pickup among traders and investors in votes for January 2014. The Federal Reserve itself, however, has moved on in its worries and plans. While the timing of any taper remains an unsettled issue, planning at the Fed is now concentrating on the endgame.

After building up its balance sheet to a record $3.84 trillion -- including $2 trillion in Treasuries and $1.4 trillion in mortgage-backed securities -- the big question, and the one with much more impact in the long-term on the U.S. and global economies and financial markets, is how does the Fed sell these assets so it can cut its balance sheet back to normal levels?

The startling answer that's starting to emerge from studies by the Fed's own economists is that selling these assets isn't an option. There is no quick exit strategy for the Fed, these studies argue. The Fed -- and the U.S. economy -- will be stuck with its current nearly $4 trillion balance sheet for a decade or more.

And that means this Fed-driven market will be with us for years to come.

The Fed owns so much of some classes of assets that it has become the market for those assets. Any significant effort to sell these assets would send prices down and yields up, producing big losses for the Fed.

The political effect of those losses, which would end the Fed's current contribution to the U.S. Treasury, would be something close to a rebellion in Congress.

Therefore, the Federal Reserve really has no option, these studies say, but to hold these assets until they mature in seven or 10 or more years.

That's the best endgame strategy open to the Fed."

Yes indeed... It is going to be real tough, but Dr. Ben Bernanke says anyone can do it (except him - 'cause he is telling the real truth by leaving - or maybe he was lucky and was just fired by Mr. Obama). 

In my "humble" opinion, Ms. Yellen's real job is going to be to reign in all the conflicting information coming from the Fed Heads that are part of FOMC.  None-the-less, consensus on the Federal Reserve board has been unusually high under Dr. Bernanke.  She must work on keeping it that way.

Canada

The Canadian Dollar is following every other currency in the world (it seems) down.  There are no economic reports that are due out from Canada today, so this is a sympathy move with all the currencies - not fundamental move

Eurozone

The ECB (European Central Bank) cut interest rates to new historical lows.  According to the ECB statement they are responding to a slump in inflation.  I told you a few days ago, this is what the lip-flapping from ECB was setting up for.    I also thought they might delay that until after Xmas.

The result is a signficant downturn in the price of the Euro against the US dollar. 

This is also likely to have significant selling pressure in Gold.  Watch that.

Australia:

Yesterday I said:  "Tonight the employment report comes out.  It is expected they will show a substantial increase in jobs for October.  "

The Labor Force report was weak.  Employment rose by 1,100 jobs which was much much lower than the estimated 10,000 jobs the economic consensus was forecasting.  The previous month's jobs was revised down by 3,300 jobs.  These kind of numbers are not good for the A$.  This gives RBA (Reserve Bank of Australia) the go ahead to follow the ECB and reduce interest rates.  Early this week, most analysts from Australia (and on Wall Street) were suggesting the opposite (rate increase).

New Zealand (who regularly follows Australia) observed prices increasing (inflation).  This would normally be a time to raise interest rates.  However, both A$ and Tasman are both taking a beating as the New Zealand dollar follows the A$ downward. 

This sympathy selling with A$ will be short lived, I think.  If one was interested in trading currency, binary options would be a way to go long New Zealand dollars.  (If you don't know how to trade binary options, then you definitely do not want to play that game.  This is not a long term trade, until the USA's Janet Yellen comes on board, and investors world wide get a better idea of what she is going to do. 

China

China's exports rose 1.7% in October from a year ago.  The Chinese Central Bank reset the Renminbi to appreciate. 

As I said yesterday (and the day before) the 3rd Plemnum begins on Saturday and runs through Monday.  Chinese Premier Xi will attempt to convince the Politburo to continue to open up the economy.  If this happens, then China will eventually let the Renminbi float.