U.S. GDP Disappoints!
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In This Issue.

* Euro, francs, kiwi all push higher.

* Whispering for stimulus begins already!

* Sweden prints a solid GDP number.

* Proof of no "real" political will.

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

U.S. GDP Disappoints!

Good day. And A Happy Friday to one and all! I'm glad to see Friday come, as this "bug" I've been fighting all week, has really taken a toll on me. It's also a Friday before a 3-day Holiday Weekend, YAHOO! So, that alone qualifies it to be a Fantastico Friday! I think the rain is moving out of here for the weekend too. And then Monday is Memorial Day, so we have all that going for us on this Fantastico Friday!

Well. I turned on the currency screens this morning to see if what I was watching last night had followed through, and it had! I'm talking about a currency rally that began late yesterday afternoon, carried through to this morning, and that makes sense, given the poor shape of the U.S. economy once again. Oh! You didn't hear? Well, since the revision of 1st QTR GDP was supposed to show a nice increase that I said I didn't believe, and then didn't, I'm sure your fave cable news station conveniently forgot to mention it!

That's right. 1st QTR GDP which originally printed at a meager 1.8% remained that meager in the first revision (it was supposed to have improved to 2.2%). And quite frankly, in my opinion, could have been lower than 1.8%, given the fact that there was a downward revision to consumer spending growth to 2.2% from the first estimate of 2.7%. Markets had expected a modest upward revision to consumer spending to 2.8%! Do, you hear the whispering beginning? The whispering from the markets, and the Fed that more stimulus is needed? WOW! My thought that we could see dollar strength until the late fall when everyone realized the economy wasn't strong enough without stimulus, just may be moved up, with the whispering beginning now!

A trader friend sent me this link yesterday, because she reads the Pfennig, and knows my take on the economy. you should check this out. and then come back for the rest of the Pfennig! http://www.cnbc.com/id/43183315

Speaking of the end of scheduled ending of this round of stimulus, A.K.A. QE2, I will make this point once again for those of you who missed class that day, or just read the 1st and last paragraphs, but. when the Fed stops buying the Treasuries, the markets are going to see a calamity. The Fed has been a large part of the Treasury buying, and thus keeping yields low, which in turns keeps mortgage rates low. (I heard on the radio this morning that you can still get a 3.75% 30 fixed loan! ) But, when the Fed steps away. Who's going to take their place? China? Don't know if you've followed their purchasing habits lately, but their appetite for U.S. Treasuries has waned. Japan? I hardly think that Japan can worry about the U.S.'s problems, with all the problems they have of their own. And then there's this little ditty that I think should put the worry warts on stock jockeys. There's an 89% correlation between the Fed's balance sheet and the movements in the S&P 500 over the past two years. UH-OH!

So. I think you see my point here. And if the markets are already beginning a whispering campaign for more stimulus, we could really see some shaky financial markets about this time next month!

So. besides the disappointing U.S. 1st QTR GDP print at 1.8% yesterday, the news elsewhere has been pretty void of market moving stuff. So, we head into a 3-day holiday weekend here in the U.S. and as usual, the volume will become very thin this afternoon, as the boys and girls in NY head to the Hamptons. Thin markets can lead to some very volatile moves in price, so keep an eye out for that!

Another thing to look for, if you find the time, is the results of a meeting between the Greek President, the Prime Minister and the opposition party, to work on a consensus reform. The announcement of a consensus reform could very well push the euro much higher, while the if the opposite comes to fruition, which would be contentious words, and a call for an election, then the euro would have the stuffing knocked out of it, just like it did earlier this week, when there was a "rumor" that a snap election had been called in Greece.

The alternative European currencies to the euro, like Norway, Sweden and Denmark, still need the euro to rally for them to get noticed, but what happens all the time, is give the euro a small rally, and these three will outperform the euro's rally. And that's what happened this morning in Sweden, where a solid 1st QTR GDP print (.8%) really pushed the krona higher VS the dollar this morning.

Now. I'm sure you read that, and said, "Hey Chuck, you call the U.S. 1st QTR GDP disappointing at 1.8%, but say Sweden's .8% is solid. why?" Ahhh grasshopper. Think about that for a minute and think about size. With the size and enormity of the U.S. economy, shouldn't it see much stronger growth than 1.8%? While Sweden is small. so .8% for them is HUGE! And most likely will grease the tracks to higher interest rates. Hope that helps.

Yesterday I told you about how the CIC Sovereign Wealth Fund from China had announced that they were going to make a large investment into New Zealand, and that news had kiwi trading near 81-cents. Well, once the U.S. boys and girls arrived at their trading desks and heard that, kiwi shot higher. And is now trading at levels that we haven't seen for 3 years! That's right, not since pre-financial meltdown has kiwi been around .8155!

And then the uber-non euro European Currency, the Swiss franc just keeps going and going like the Energizer Bunny. The franc is trading well over $1.16, with an eye on $1.17!, and the strength of the currency doesn't seem to be hurting the economy, as the Swiss Economic Institute KOF reported today that their leading indicator for the economy is at 2.22, for May. I don't know what they use as their data points, but, the markets seem to like the number, so we'll go with it!

And European Central Bank (ECB) President, Jean-Claude Trichet, said he is "monitoring "upside risks" to inflation, but he indicated that an increase to interest rates is not imminent." Ok. before every jumps ship on the outlook for further rate hikes in the Eurozone. Trichet is simply trying to throw the markets off the scent of another rate hike. The ECB likes to think that they aren't influenced by the markets or Governments. So, if Trichet throws everyone off the scent of a rate hike, and then hikes them in July like I've called for, then, he will have done his job!

I think that there are other things on the horizon that are more important for the Eurozone. Front and center is the mid-June deadline to come up with a plan to deal with Greece. I think this is why it is so important for the Europeans to want a European IMF Chief. But, when it all comes down to it, I think a bailout (new and improved!) will be put together for Greece, and the Greek can will get kicked down the road once again.

I don't know if that helps or hurts the euro. One would think that putting the thought of a default behind them for now, would be good for the single unit. But we'll have to wait-n-see, eh?

So. did you know that for the first time in many moons. the inflation rate in the U.S. is greater than Bank CD deposit rates? Well, that's the case! That's a pretty sad statement for our economy, folks.

A reader sent me this note that I think is pretty bang on. he said, "Entitlements are one thing, but I read a month ago that the US has already spent 1.08 trillion on national defense so far this year. Do you know how much China spends on defense all year?.....Drum roll, please........80 billion.

In the 80s we had a race with the USSR on who could outspend the other on defense and they went bankrupt first. Guess who's losing now?"

Then there was this. You know I write and tell people all the time that I truly believe that there is no "real" political will to move the country's deficit spending, and reduction of the debt in the right direction. I think yesterday's vote in the House proves that point. The vote to accept Paul Ryan's budget, was defeated, with a handful of Republicans voting against the budget, which called for changes in Medicare. Now, before you get angry at me. The seniors of this country were not going to be affected by the changes! I just find this all to be a battle of words and most of them are lies! We have to do something folks! And that's all I'll say about that today.

To recap. The disappointing no change revision for U.S. 1st QTR GDP (1.8%) has really sent the dollar to the woodshed, with the euro leading the charge. The Swiss franc is eyeing $1.17 this morning, and kiwi is back to levels it last saw in 2008, before the financial meltdown. The whispering campaign for more stimulus for this flagging economy are beginning already, folks.

Currencies today 5/27/11. American Style: A$ $1.0680, kiwi .8155, C$ $1.0235, euro 1.4235, sterling 1.6420, Swiss $1.1670, . European Style: rand 6.9365, krone 5.4530, SEK 6.2530, forint 188.50, zloty 2.7950, koruna 17.25, RUB 28.10, yen 81.10, sing 1.2375, HKD 7.7805, INR 45.17, China 6.4915, pesos 11.65, BRL 1.6145, dollar index 75.15, Oil $100.54, 10-year 3.06%, Silver $37.74, and Gold. $1,525.80

That's it for today. Well.. the end of a very long week for yours truly. it began though with the great news of the arrival of Braden Charles Butler. And went downhill from there. But I'm sure I'll feel better by this weekend! I hope you have grand plans for the weekend, but don't forget to say a short thank you to those who made the greatest sacrifice for our freedom. Little Everett, the EverBaby, and his sister Delaney Grace were at the house yesterday when I got home. Everett is getting big (6 months old now), and his sister just loves him to death! And he just smiles all the time she's hugging or kissing him, or pulling on him. it's cute watching them. And with that thought, I'll end the Pfennig today (on a good thought!) and hope you have a Fantastico Friday, and a simply Happy Holiday Weekend! Bye..

Chuck Butler


EverBank World Markets



Posted 05-27-2011 8:50 AM by Chuck Butler
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