Inflation Is Coming!
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In This Issue.

* Selling Triggers more selling.

* ECB & German Gov't different opinions.

* New Zealand experiences aftershocks.

* Budget Deficit to exceed $1 Trillion again!

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

Inflation Is Coming!

Good day. And a Marvelous Monday to you! It's not a Marvelous Monday for the currencies, stocks, commodities and the Miami Heat, or my beloved Cardinals. But, those two teams will get through their rough patches, one this year, and the other has to wait for next year. But the risk assets. Talk about getting slammed on Friday. Whoa! That was one nasty move, and so, here we are on this Marvelous Monday sifting through the ashes of risk assets that got burned on Friday.

So. is it over? The selling that came fast and furious on Friday? I guess the only thing that stopped the selling on Friday was simply time ran out on the trading day, and with it being a Friday, there was no Asian market to pick up where the U.S. left off. So. Saturday and Sunday, brought out the calmer heads in Asia, and the risk assets of Currencies and Metals found a bid. Not a strong bid, but enough to wrap a tourniquet around the bleeding.

So. What caused this selling? Well, you can go back and lay the price graph over the time line, and see that precisely at 7:30 (CDT) the selling began. So. what happened at that time? Strange as it might seem, it was the Import Prices data that stirred the selling drink. Apparently, in May, Import Prices surged, as the Import Price Index showed a 12.5% increase! Now. you and I we not falling for the belief that Fed Chairman, Big Ben Bernanke has that inflation is only "transitory". But, apparently, the markets did. for when they saw that 12.5% increase, they went bonkers! Inflation! Inflation! Sort of like, The Russians Are Coming, The Russians are Coming!

But herein lies the problem that I have with the selling. If inflation is ready to take off on a moon shot, wouldn't the assets that are associated with protection from inflation garner the attention of buyers? Apparently not! At least not on Friday. You see. nowadays, you can't do any decent sized selling without triggering more sales, which triggers even more sales, as price-stops are taken out, and just like everything else in life, what is considered a "correction" ends up going all the way to the other side, over compensating and leaving whatever it is that is correcting, so far removed from what we had before the correction. Not sure if I explained that clearly. but, at 5 am, that's the best I can do today!

The data cupboard, here in the U.S., is empty today, but that's the calm before the storm, as the rest of the week has some market moving data on the docket, and ready to print. Data prints like PPI, Retail Sales, the stupid CPI, The TIC Flows, Industrial Production and Capacity Utilization, Housing Starts, and so on. So, it could be a wild and wacky week for the investment sector. I guess as the week goes along, we'll see that Retail Sales will end up being the most important print of the week. And with that, it's time to pull out the BHI (Butler Household Index), dust it off, and see what it tells us to look for when May's Retail Sales data prints tomorrow. The BHI, is indicating that the May Retail Sales will be soft, a little disappointing, as I don't recall seeing many shopping bags, or UPS deliveries to the house in May. (But I was gone for 2 weeks in May, so maybe I missed some!)

In addition. the regional manufacturing index's from NY and Philadelphia will print. These are normally pretty wild west type reports, but. given the fact that last month's ISM (national manufacturing Index) gapped down, big time, it will be interesting to see if the regionals give us some indication of any more rot on the ISM vine.

Throwing salt in the euro's wound on Friday, was European Central Bank (ECB) President, Trichet, who just won't let the bailout of Greece go as planned. The ECB is in disagreement with Germany, and this is not doing the euro any favors, folks. You see, Germany's Central Bank, the Bundesbank, has long been considered the "model" for Central Banks, in that they provided price stability, and was totally autonomous from the German Gov't. Most of what the ECB does, and says, is a direct result of the fact that it was modeled from the Bundesbank. I remember classic battles between German Chancellor Kohl, and Bundesbank President, Tietmeyer.

So, with that closeness to the Bundesbank, you can see why the ECB is standing strong, with their difference of opinion, with German Finance Minister, Schaeuble, on how Greece should be handled is not THAT strange. At least to guys like me that were doing currencies and writing a newsletter back in the mid-90's! Yes. the Pfennig began in 1992. Believe it or not, but back then (no internet to speak of remember), the Pfennig was had written, and placed on the sales desks, who would then fax the letter to their customers that were important to them. I still have those hand written Pfennigs. They are a real hoot to pull out and read every now and then.

But I digress, and I apologize. Down in New Zealand overnight, the country received two aftershocks of magnitudes of 5.5 and 6.0, so not just some rattling around. The aftershocks were located near Christchurch. The Gems of the South Pacific, Australia and New Zealand, just have not been able to catch a break from Mother Nature. And every time something like this happens it throws the recovery of the country out of line. And that hurts the currency of each respective country. This time it was the New Zealand dollar / kiwi that got sold overnight.

Well, folks. there is some damaging (to the Fed, and Gov't) going around this morning. it began with a story that can be found over at :

Apparently. the writer believes that QE2 was not for the U.S. economy, but instead for Foreign Banks. The writer makes a great case for his belief. And after looking it over, I have to say that it certainly has merits. the biggest one is the fact that the U.S. economy is going backwards, and this after $2 Trillion in stimulus the past 3 years. But, there's the story, you can make your own decision.

My friend, John Mauldin, had a great piece in his weekly newsletter last week. In the letter he explained how the U.S. has as much to lose as Europe if Greece defaults, due to default insurance that was sold by U.S. institutions to European institutions. That's pretty damaging stuff, so. no wonder the President was saying last week that the U.S. will support Greece! John always puts together a good letter each week, albeit quite long, so. if you want to go it and find the part about what I'm talking about here, then click here:

So. I'm watching the euro climb higher this morning from the level it held when I came in. Not sure if it's a rebound or just bottom fishing going on. You know. it was just last week or the week before, not sure I recall when it was, but I was telling you about how in 2005, 2008, and 2010, there were investment people calling for the collapse of the euro, and each time the euro proved to be resilient. Well, with the selling we saw on Friday, those same people that have been wrong 3 times now, came back out and said, "this is it"! But. Bundesbank head Weidmann played down the risks from Greece, saying "the euro can weather a potential Greek default."

Then there was this... From Yahoo Finance (thanks Scott!) WASHINGTON (AP) -- The federal budget deficit is on pace to break the $1 trillion mark for a third straight year. Record deficits are putting pressure on Congress and the Obama administration to come up with a plan to rein in government spending.

Already, the deficit through the first eight months of this budget year is $927.4 billion, according to the latest report from the Treasury Department released Friday.

Three years ago that would have ranked as the highest ever for a full year. Instead, this year's deficit will likely exceed last year's $1.29 trillion imbalance and nearly match the $1.41 trillion record reached in 2009. The budget year ends on Sept. 30.

Chuck again. I just shake my head in disgust, folks. this has gotten completely out of control, and to try and control it now, is going to be tough. real tough, like a steak at .. Hmmm, I guess I had better not say where, or else I'll get my hands slapped again, but. think about some diner or restaurant, where you had a tough steak!

To recap. The currencies and metals (and stocks) got whacked on Friday, and it was a classic one sell, triggers another sell, type of day. The Import Price Index increased 12.5% in May, and got the ball rolling on a selloff of the risk assets. New Zealand experienced two aftershocks last night, and their currency got rattled too, and. it's a big DATA week here in the U.S, so get ready for a wild and wacky week!

Currencies today 6/13/11. American Style: A$ $1.0575, kiwi .8125, C$ $1.0230, euro 1.4390, sterling 1.6320, Swiss $1.1965, . European Style: rand 6.7845, krone 5.4610, SEK 6.3330, forint 184.10, zloty 2.7340, koruna 16.7680, RUB 27.95, yen 80.35, sing 1.2365, HKD 7.7845, INR 44.87, China 6.4830, pesos 11.88, BRL 1.5965, dollar index 74.68, Oil $98.04 (a bid drop in the Oil price, eh? ), 10-year 2.98%, Silver $35.65, and Gold. $1,527.40

That's it for today. Thanks to all of you who sent along congratulations notes on Kathy & Chuck's 35th anniversary. Congratulations to the Dallas Mavericks, who won the NBA Championship last night. And I'll be Home Alone this week, as Alex is away at wrestling camp, and my beautiful bride and her sisters, and mother, and aunt, and daughters are heading to Florida. I sure hope I don't have any of the problems that Kevin McAllister had in the movie: Home Alone! HA! We celebrated "Father's Day" yesterday, since the "girls" will all be gone through this weekend when the real "Father's Day" will be celebrated around the country. I'll talk more about that later this week. Well. Mike's here, so that means I'm pushing the envelope on getting this out on time! So. it cooled off here this weekend, great stuff! And with that I'll get out of your hair, and thank you for reading the Pfennig. I hope you have a Marvelous Monday!

Chuck Butler


EverBank World Markets



Posted 06-13-2011 12:55 PM by Chuck Butler