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In This Issue.
* Gold drops another $77!
* Currencies are mixed & in tight ranges.
* What will Big Ben say?
* New Zealand Retail Sales surge!
And, Now, Today's Pfennig For Your Thoughts!
All The World's Problems Have Disappeared!
Good day. And a Tub Thumpin' Thursday to you! It's been the exact opposite of a Tub Thumpin' day for Gold this week, after climbing to $1,897. The damage to the shiny metal yesterday is something for the ages. You can tell your grandkids that you were around the week that Gold lost $XXXX. right now that figure is $195 in the past three days.
And the tourniquet hasn't arrived just yet to wrap around the shiny metal, as it has lost another $45 this morning. I told the interviewer for the Street.com last week that Gold was trying to correct, but the buyers wouldn't let it, given all the problems in the world. I guess all those problems have disappeared and there's no reason to want a safe haven like Gold any longer. Really?
I would go into my rant on manipulation, but. the kinder, gentler me won't go there. but, one does have to wonder where the CFTC Commission is on this? For this is not normal, and it is unexplainable to me. Sure, Gold was in need of a correction, for it had moved so far so fast in so little time, but suddenly, it has lost nearly $200. There's something else at play here folks. I can feel it in my bones!
OK. The currencies were a mixed bag of nuts yesterday, with some gaining VS the dollar, or at least holding steady Eddie, while others saw weakness. The offset currency to the dollar, the euro, saw a tight trading range most of the day, with no breakout in either direction. This morning, the euro remains in that tight trading range. And that's OK with me, for a couple of days that is. catch your breath, and then continue on your journey, right?
I think those that are wanting to sell the dollar, are waiting for Big Ben to talk, which comes tomorrow at the Fed's Jackson Hole boondoggle. It's funny, or maybe it is, but it's funny to me, that in previous years, we would hear all sorts of snippets from economists attending the boondoggle. But not this year, they too are all waiting to hear Big Ben Bernanke. For they don't want to have egg all over their faces should they say something and then have Big Ben deep six it, with his comments.
The U.S. economy is the elephant in the room folks. and how the Fed intends to fix the economy is what the world is waiting to hear. Personally, I would prefer for the Fed to do nothing. No printing of money, no leaving interest rates near zero, and certainly not give in to more Quantitative Easing. Get the Gov't out of the small business's way, and have the Fed leave us alone, and see what happens. Hey! We've tried all kinds of stimulus, remember checks in the mail? Or how about cash for clunkers? Or $700 Billion, or $2.3 Trillion in 2 rounds of Quantitative Easing?... Let's try something else, eh?
For the record. I believe that Big Ben will discuss the Fed's options regarding stimulating the economy tomorrow, but won't go out on the limb and center on one. This will be very unfulfilling for the markets. I don't know what the markets will do, but I would steer clear of the risk assets if that happens. and if Big Ben would center on an option, thus giving the markets the scent of more stimulus, I would steer clear of Treasuries. But that's just me. I'll probably be so wrong here that I'll almost be right! HA!
I walked into the hot office this morning and turned on the TVs we have the surround the trading desk, and on Bloomberg there was a story that went across the screens that said, "Dollar Decline Benefits U.S. Economy as Presaged by Feldstein". Well, you know that I was like a bug attracted to light at that point, and had to sit there and listen to the story. I'm shaking, the earth was quaking, and economist Martin Feldstein was making noise about how the lower dollar helps the U.S. economy. Feldstein had this to say. "A lower dollar means more exports, and it also means a shift from consuming imported products to consuming goods and services that we produce in the United States." He went on to say. "One of the things about the declining dollar is that it doesn't add to the national debt."
OK. not that I'm qualified to debate a Harvard University economist like Feldstein. but. I'll give it my best here. Yes, a weaker dollar does allow a country to be more competitive when it comes to exporting goods. But. doesn't a weaker dollar reduce consumer's purchasing power? So, doesn't that wipe out the benefits to exporting? And. since when do exports require a "discount"? The euro is much stronger than the dollar and other currencies, and Germany is still an export giant. And. while I'm at it, where are the goods that we produce?
Oh well. yes, a weak dollar is how the Gov't will make payments on the debt servicing in the future, but the effects on each consumer with the loss of purchasing power, will drag the economy down.
It looks like all the jawboning and funding of an account to pay for intervention is taking a short term affect on Japanese yen. The yen is weaker this morning, but not by that much. Again though, none of what the Bank of Japan (BOJ) or the Finance Ministry has to say, will mean a hill of beans if Big Ben talks additional stimulus tomorrow. The dollar will get taken to the woodshed, and yen will rally thus throwing cold water on the BOJ's words.
Yesterday, U.S. Durable Goods Orders surprised the markets with a very strong showing. Durables for July rose 4%, more than retracing June's negative -1.3% result. However, before you go out and bang the pots to mark a turn-around for the economy. Much of the increase in Durables came from a 14.6% increase in transportation orders, which saw a 43.4% surge in commercial aircraft orders. (remember a month or so ago, when the airlines were making those announcements about new aircraft that was ordered? Well. here it is!) So, unless we're going to order record levels of new aircraft each month, Durables won't be able to repeat this 4% rise. but for now, go ahead and bang that pot, but do it with a Q-Tip!
I see where the margin requirement on Gold contracts was raised again yesterday. It was the second time this month that the margin requirement has been raised. I mean what caused that, when Gold was falling $77 yesterday? Again. I think about outside forces manipulating the price. but then, that's just me. You don't have to think that.
I had better move along here. there's nothing to see, these aren't the droids you're looking for! The further I get away from thinking about the idea of manipulation the better, for one never knows what I might say!
And I don't think I can get further away from that by going to New Zealand. So, that's where I'll head. 2nd QTR Retail Sales in New Zealand increased .9% VS the 1st QTR, and the 1st QTR saw a small upward revision which takes the annual rate to 1.1%. The New Zealand economy is showing some very good signs that they are recovering strongly from the Earthquakes that hit the Islands last year. And kiwi is one of those currencies that are moving higher this morning.
The Swiss franc is seeing some selling too. so the safe havens of Gold, francs and yen are all seeing some weakness, and in Gold's corner a lot of weakness. Like I said above, I guess the world's problems have disappeared just like that! Oh. and the other so-called safe haven, U.S. Treasuries saw a ton of selling yesterday too!
And so I don't get my Silver bugs upset with me for not mentioning Silver. How can say this? . Oh, Chuck no poetic prose here, just blurt it out! Ok. well. Gold may be in need of a tourniquet, but Silver is in need of a body wrap. Silver is down by more on a percentage basis than Gold. But after outperforming Gold for 7 of the last 10 years, Silver was due to outperform Gold on the downside too! OK. maybe I just made my Silver Bugs mad at me any way, since I didn't have anything nice to say. But, again, if this is a correction, then let it be a nice healthy one.
Then there was this. Bill Bonner over at the Daily Reckoning (www.dailyreckoning.com) always has something interesting to say, to me at least! Well, yesterday Bill said that the Gold selling was just market noise and then went on to say this: "Stimulus does wonders for stock prices...but it no longer works for the economy that sustains them. For every dollar that the Fed has put to work to fight the crisis since 2008, for example, it has produced only 80 cents worth of GDP. It didn't work.
Fighting a credit contraction with more credit is a losing proposition. Eventually, investors are bound to realize that stocks are headed down. Eventually the bear market will resume. And eventually it will come to an end.
Our guess is that it will end when the Dow and the price of gold arrive at the same point - probably around $3,000. Whatever the number, you'll be able to buy the entire group of Dow stocks for the price of one ounce of gold.
Of course, our view is a minority one. Warren Buffett doesn't buy it. Most investors don't buy it. We don't even suggest that you buy it, dear reader. Just remember it. If it turns out as expected, we want to be able to say 'We told you so.'"
Chuck again. Thanks Bill. I needed that!
To recap. Gold (& Silver) got smacked around again yesterday, and is seeing more bleeding this morning. Swiss francs and Japanese yen are also weaker as all the world's problems have disappeared, right? The currencies are a mixed bag of winners and losers this morning, with the euro trading in a tight range, as the markets await Big Ben Bernanke's speech tomorrow at the Jackson Hole boondoggle. New Zealand saw a surge in Retail Sales, and U.S. Durables were dominated by new aircraft sales.
Currencies today 8/25/11. American Style: A$ $1.0470, kiwi .8315, C$ $1.0140, euro 1.4435, sterling 1.6370, Swiss $1.2585, . European Style: rand 7.22, krone 5.4035, SEK 6.3105, forint 188.50, zloty 2.88, koruna 16.7785, RUB 28.82, yen 77.20, sing 1.2080, HKD 7.7960, INR 46.05, China 6.3899, pesos 12.42, BRL 1.6135, dollar index 73.95, Oil $85.45, 10-year 2.27%, Silver $39.30, and Gold. $1,716.30
That's it for today. I know it's still August, but I'm noticing that the sun is rising further south each day. Little Braden Charles (B.C.) was at the house when I got home yesterday, he's 3 months old now, and starting to look like his dad, more and more. Cards lose again. UGH! This is going to be a very ugly ending to what was a promising year a month ago! Football can't get here fast enough for the Cardinals. of course looking at the Rams schedule, they could be 0-5 and the cat calls for them will be loud too! But, the second half of the year the Rams will come back strong! Alex came home looking like he was "beat" last night, after swimming practice and then on to his job. Hey! That's good for the youngsters, keep them busy! His first High School swim meet will be next Monday. And with that, I'll get out of your hair. I thank you for reading the Pfennig, and I hope you find a way to make this a Tub Thumpin' Thursday!
EverBank World Markets
08-25-2011 1:11 PM