Waiting On The Norges Bank...
Daily Pfennig

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In This Issue..

* Euro continues to get sold...
* Will Norges bank get confused?
* Thoughts on China...
* Gold gets dragged down by euro...

And Now... Today's Pfennig!

Waiting On The Norges Bank...

Good day... And a Wonderful Wednesday to you! It's getting quite ugly out there in the investing world. Yesterday I tried to draw a line of comparison from the near collapse of Bear Stearns to the problems of the Eurozone... That line became quite a bit more clear yesterday and in the overnight markets... Let's go to the tape!

Well... It was another day of selling the euro and dragging other currencies along for the ride... This time, Gold and Brazilian real could no longer resist the pull / drag of the euro selling... It has actually become a rout on the single unit, as now, we're not only dealing with the sovereign debt risk of Greece (which I still contend is not that big in the whole scheme of the Eurozone) but now, the euro is sailing into technical trading rough waters...

My charts friend sent me a note yesterday letting me know that the future for the euro is looking dark, unless a reversal can be brought about... He had this to say...

A daily close below 1.3067 would add to bearish price momentum, targeting 1.2965, followed by the April 2009 low at 1.2888. Note that as I went home yesterday, the euro had fallen below the 1.3067 level... And in the overnight market, it has fallen below 1.30 to 1.2940...

Note that the descending channel base for the current downtrend is located at 1.2638.

Looking at the trading that's gone on this week, one would have to think that the euro is nearing oversold levels, and we could see a mini-technical rally...  But, if we don't move higher than 1.33 in the rally, it would only prompt more people to sell at these higher levels...

Back to Chuck... Yesterday, I told you about how the European Central Bank (ECB) had relaxed its rules to help Greece... Well, the German newspapers are awash with stories on how wrong this was for the ECB to do... I agree! However, I don't believe the ECB had any other choice, if... They have designs on the Eurozone and euro remaining in place! So... The ECB was caught between the proverbial rock and a... Rock!

Outside of the Eurozone... In Norway... The Norges Bank is meeting as I write, and while before all this rout on the euro began, I would have thought the Norges Bank to be raising rates at this meeting, I now, have to back off that thought a bit... I'm sure the Norges Bank has their eyes on what's going on in the Eurozone. Now... If I were on the board of the Norges Bank, I would remain steadfast in my will to raise rates any way! That's the beauty of being outside the Eurozone! Norway's Central Bank can make decisions, and should make decisions based on their own economic data...

But... I'm afraid that won't happen folks... If it does... Kudos to the Norges Bank... But I'm afraid will have to accept the fact that they just don't have the intestinal fortitude to hike rates right now...

And in the U.K. they are preparing for an election, which should have the pound sterling in tizzy... But... Pound sterling is actually holding pretty steady Eddie as the election draws near, which is pretty darn strange, given the rumors of the election results... Most believe that the election will result in a "hung parliament"... That kind of news would normally deep-six a currency... You know, the Uncertainty thing...

Boy... Those guys and gals down under in Australia that came up with that 40% mining profits tax sure know how to kill the goose that laid the golden egg, eh? Well, on second thought, it looks like the Aussie dollar (A$) has been ganged up on, by the tax and the statement by the Reserve Bank of Australia (RBA) Gov. that put the thought of further rates hikes in a jar for now...

I have to believe that this is all short-term, for Australia, whether they get another rate hike or not, still enjoys a very nice interest rate differential to the world... And the data there keeps printing strong... Overnight, it was April Building Approvals, which printed at +15.3% (the consensus was only for a .8% increase!)... That's HUGE!

And that brings me to China... I saw yesterday that very well respected analyst, Marc Faber, said that China is going to crash in the next year... Which was strange, because right before I saw that story, Ty Keough has asked me my thoughts on China... This is what I told Ty...

I truly believe that China has gone about doing things "ahead of the curve" to prevent a meltdown... That doesn't mean that one still can't happen... But it also means that it might not happen either! China has gone about their business of slowing down the housing boom, but reducing the demand (they halted 3rd home buys, and put huge requirements on 2nd home buys), and they raised lending bank reserve requirements, which limits the amount of cash the bank has available to lend out... So... In my opinion, I believe the economic ship will remain at sea for China... And that will remain a feather in Australia's cap...

See how I tied that all together? You don't get that with amateurs! HAHAHAHAHAHA!

OK... Seriously, today, we'll see the ADP Employment report, and the ISM non-manufacturing, both of which contain data on employment... Here's what I think we'll see... First of all, the ISM employment figure will include Gov't census workers added in April, which I believe will be 125K... So, when this employment figure prints, remember that some where around 125,000 of that number is census workers...

The ADP Employment report, will not add the census workers... Unfortunately, despite attempts to mirror this up the Jobs Jamboree data, the ADP report is usually all over the board...

So... What I'm saying is... I wouldn't put too much into either of these reports today... But, that's just me... The media on the other hand will probably so enamored with the huge ISM employment figure... Of course, you will be able to laugh at them if they forgot to look under the hood at the number of census workers in that figure!

OK... I've been following the goings on with the Congressional inquiry with Goldman Sachs... It's a shame that the Gov't doesn't have someone to tell them what questions they should be asking! Like... What went wrong? Sure you had this hedge, and that hedge, and all that, but what, went wrong? You can't get it right, if you don't know what went wrong! And I can tell you this... I've been on the side of the fence that doesn't blame capitalism since the beginning!

So... Earlier today I told you that Gold had finally succumbed to the drag of the euro... The shiny metal fell hard yesterday, back below the $1,170 level that we looked at last week as a line of resistance on the way up! Stocks got rocked too... So this is a return to the "throw all the risk assets into a barrel and send them down the river"... You know my feelings on that... It stinks! And if you want some confirmation that there's a rush to buy dollar assets... The yield on the 10-year fell 10 BPS yesterday... That means the buying was hot, and heavy!

Then there was this... Boy was I ever slow at the wheel yesterday... I completely forgot to mention, although I had previously planned to do so, May 4th marked the 40th year since the "four dead in Ohio"... the student deaths at Kent State University... You know, I was a young man right out of high school, playing in the band, when I heard the news... I still get chills just thinking about it. Especially every time I hear the CSNY song, Ohio...

And now... it's the 5th of May... Cinco de Mayo... years ago, I wrote a story about a visit that I made to Mexico, when I picked up a microphone and began singing along with a street musician... It was great fun! However, I received one of the nastiest emails from someone that year, regarding that story and Mexico... The boys and girls on the trading desk here still give me the business (Eddie Haskell style) about that email... So... To that guy... Happy Cinco de Mayo!

Currencies today 5/5/10: American Style: A$ .9075, kiwi .7180, C$ .9740, euro 1.2935, sterling 1.5150, Swiss .9030... European Style: rand 7.6075, krone 6.0650, SEK 7.4525, forint 214.10, zloty 3.1185, koruna 20.02, RUB 29.80, yen 94.70, sing 1.3845, HKD 7.7660, INR 44.93, China 6.8263, pesos 12.62, BRL 1.7640, dollar index 83.65, Oil $81.55, 10-year 3.60%, Silver $17.60, and Gold... $1,166.20

That's it for today... A good win was followed by a tough loss for my beloved Cardinals last night... A real Pitcher's duel... Old time baseball! Of course the Cardinals could have won it in easily had they taken advantage of their base runners! UGH! Congrats to my little buddy Alex, who had his end of the year science project nominated to go to the Science Fair... Tomorrow is the National Day of Prayer. President Ronald Reagan designated the first Thursday in May as such in 1988... With all the prayers that have been said for me lately, I thought it appropriate to mention that... Well... I'm running very late, it's time to go... I hope you have a Wonderful Wednesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 05-05-2010 8:20 AM by Chuck Butler