The Tax Man Cometh.
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In This Issue.

* China's wider band and

* U.S. Retail Sales send risk assets higher.

* Intervention for kiwi?

* What's with the Fed editing tapes?

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

The Tax Man Cometh.

Good day. And a Tom Terrific Tuesday to you! And in keeping with the tradition I set many years ago on Tax Day.

If you drive a car, I'll tax the street, If you try to sit, I'll tax your seat.

If you get too cold, I'll tax the heat, If you take a walk, I'll tax your feet. 'Cause I'm the taxman, yeah, I'm the taxman.

Yes, we did receive a couple extra days this year to file our taxes, given that April the 15th was a Sunday. But, the day is here. I personally totally dislike taxes. but, they are what they are, I guess.

Well. a very nice rebound in the currencies yesterday (the metals slogged along), which was first fueled by the news from China that they had widened their trading band for the renminbi, and then second by the news that U.S. Retail Sales, while not meeting the previous month's downward revised increase of 1%, did surprise to the upside reaching out to .8%...

Some really smart people decided to look at Retail Sales differently, and put a lasso around what they called "control" Retail Sales, which includes sales of gasoline, motor vehicles, and building materials. and then see what Retail Sales look like without these big ticket items. And Retail Sales without the control items still rose .5% in March.

Of course, we won't know that the Consumer Credit numbers are for March until May (ridiculous, I agree!) I like to look at that data in conjunction with Retail Sales, to see if we as a country of consumers continue to spend more than we have, just like our Gov't.!

But the killer to me on all this activity yesterday was that apparently the risk assets are still all tied together. Stocks, currencies and metals. all my wishin' and hopin' and prayin' that these would go back to previous 2008 trading norms, have been put on hold.

Yesterday, we also saw the TIC Flows jump much higher ($107.7 Billion) than forecast ($30 Billion). So, what gives there? OK, first of all for all you newbies to class, the TIC Flows are the net of securities (read Treasuries) purchased by foreigners. This number needs to remain strong, for this is how we finance our debts and deficits. OK. here's what I could find.

Recall that a couple of months ago, I told you that China was slowly backing away from the Treasury auction window, which was scary? Well. for February, they came back.. I reporter from CNNMoney called and asked me my opinion on this news. I told him that "There is a give and take. The U.S. wants the dollar to be weaker, but not for it to fall a cliff. It's the same for China. They will continue to show up and participate in bond auctions occasionally to keep everybody happy."

So. the ding dongs that continue to shout from the rooftops that the foreigners don't care about what kind of deficits we add to our debt, and that's proven by the fact that they keep showing up at the auction window. are going to be proven so wrong, they'll almost be right.

OK. back to the currencies. The euro was the Big Dog once again, leading all the little dogs off the porch to chase the dollar down the street. The euro nearly had a 2-cent gain on the day, given where it fell briefly the previous night!

This morning in the Eurozone, Consumer Inflation was revised upward to 2.7% in March. Remember that the European Central Bank (ECB) has a ceiling target for consumer inflation of 2%... But also remember, that ECB President, Draghi, crossed streams by cutting interest rates, in the face of inflation raging much higher than the ceiling target. So, apparently, this ceiling target is merely a "suggestion", and not a rule.

Dr. Egon Spengler told the Ghost Buster "Don't cross the steams" Dr. Peter Venkman asked why? Dr. Spengler said, "it would be bad. Try to imagine all life as you know it stopping instantaneously and every molecule in your body exploding at the speed of light." I guess Draghi was like Dr. Venkman who said, "I'm fuzzy on the whole good/ bad thing."

Ok.. a little fun this morning. I filed my taxes yesterday. I need something to help me smile! I told you all years ago, that this is a stream of consciousness at 5 a.m. So, when I said that Draghi had crossed the streams, I immediately slipped into 1984 and the first Ghostbusters movie.

But I'm back now. but did you see how I tied the Ghostbusters thing to Draghi? I'm pretty proud of myself right now. so I'm going to step away and be back in a minute.

OK. I'm back! Did you miss me? HA! And back to the Eurozone. where this morning we saw the color of the latest index of German Investor Confidence as measured by the think tank folks at ZEW, increased to 23.4 from 22.3 in March. And there was also good news from Spain, where the pain has been mainly on the plain. Spain was able to auction more than their target amount of 3 Billion euros of bills, with the total hitting 3.18 Billion euros, and while the yield on the 12-month bills was higher than it was last month, it didn't get completely out of line.

And. the important thing to think about here is that when you need to attract buyers to your debt, even in rough times like Spain has seen lately, you need to raise the yield. Curb appeal, you might call it. but it works. Something we'll have to deal with here in the U.S. soon enough.

Speaking of what we have to deal with here in the U.S., Treasury yields have fallen again, and you have to wonder who would want to own U.S. debt at less than 2%? And with yields falling again (recall that just last month they had risen to 2.38%) you look around for other investments that might pay more than 2% (much less for the investors once the broker takes his pound of flesh from the trade)

I read something last night that was interesting in that the researcher tied the movements of Treasuries and Japanese yen together. As Treasury yields, in the 10-yr Treasury, fall, yen gains VS the dollar, and vice versa. Pretty interesting

Remember yesterday when I mentioned that Reserve Bank of New Zealand (RBNZ) Gov. Bollard, was never a fan of a strong kiwi? Well, Bollard is retiring this year, so I immediately think that maybe there's another Don Brash for New Zealand (Brash was RBNZ Gov in the 90's). But then I see where the Prime Minister (PM) has picked up the slack for Bollard. PM Key, stated last night that the New Zealand dollar (NZD) or kiwi, was "overvalued" and that "the government is considering what can be done to resist a rising exchange rate."

Geez Louise, I dislike these guys! Do they not see that a strong kiwi is what is helping to keep inflation below their 2% target rate (currently 1.8%) ?

Remember. the RBNZ is autonomous from the Gov't. So the PM can spout off all he wants, the RBNZ sets the monetary policy, and has strict guidelines it has to follow should it want to intervene, ala Japan, Brazil, and all the others that intervene. Here's the criteria:

1. The exchange rate must be exceptionally high or low

2. The exchange rate must be unjustified by economic fundamentals

3. Intervention must be consistent with the Policy Targets Agreement.

4. Conditions in markets must be opportune and allow intervention a reasonable chance of success.

So. given all that, I don't see the RBNZ joining the ranks of Japan, et. al. However, we can expect to continue to hear the likes of PM Key, and RBNZ Gov. Bollard talking the currency lower.

I have to stop for a couple of minutes to sing along with the Spinners, singing I'll Be Around.

OK. back again. what a great song!

The Bank of Canada meets today. and even though Bank of Canada (BOC) Gov. Carney last talked about how rates would rise sooner than later, it's not "sooner" yet. So, the markets will be looking for signs in the press conference that follows the rate announcement of any hawkish statements. If the conference is deemed to be just "less dovish", I don't think the Canadian dollar / loonie will be able to hold onto the gains it made the last two days.

Sweden's Central Bank, The Riksbank, meets tomorrow on rates. With Sweden's latest downgrade for economic growth, I can't see the Riksbank hiking rates, nor do I see them doing a knee-jerk rate cut. The Swedish krona has suffered through the gyrations of most of the currencies these days. I recently told a crowd of people that one day, sons and daughters, the markets will realize that countries like Norway and Sweden are NOT the euro. and have completely different fundamentals.

Next week is a BIG DAY for the Aussie dollar (A$), and Aussie rates. The Reserve Bank of Australia has said that a rate cut in May is dependent on the first QTR CPI (consumer inflation) report, that prints on April 24th. I know I'm going out on a big fat limb here, but I've said this before, that I don't agree with the markets' call that interest rates in Australia need to be cut. and I continue to believe that the markets have put too much into a rate cut by the RBA in May.

Therefore, if I'm correct. all those trades / shorts, put on to take advantage of a weaker A$ from the May rate cut, might have to be reversed, and that could be a big lift to the A$... But remember, that's just my opinion on these things. I could be wrong!

The U.S. data cupboard will yield two of my fave pieces of data this morning, as March reports for Capacity Utilization and Industrial Production get printed. Some Housing reports will also print, but those have been so skewered lately toward multi-family units that it's difficult to decipher if housing is rebounding or not.

Then There Was This. From the WSJ this morning. "The Federal Reserve has pledged to be more transparent, but it is only willing to go so far.

The central bank normally releases comprehensive transcripts of its policy-making meetings five years after the sessions. But when news organizations requested transcripts of the meetings around the 2008 financial crisis, the Fed released redacted documents that revealed only pleasantries from the sessions and no substantive discussions. "

Chuck again. The transcripts during the 2008 meetings were so heavily edited that discussions of all substantive issues were withheld. Now, doesn't that just tick you off? It does me! Especially on a day that I filed my taxes! Someone should file a request for the information unedited, and fight until they get it! But not me. I can't do that in my kinder, gentler Chuck persona.

To recap. the euro led a very nice currency rally yesterday, with all the risk assets once again, being thrown together for trading. The TIC Flows were huge in favor of the U.S. debt, which is really questionable, eh? U.S. Retail Sales were stronger than expected. N.Z. PM Key disses his currency, and Chuck goes all Roman Polak on him. (only Blues fans know what I'm talking about there!) And what's with the Fed editing the tapes of their 2008 discussions?

Currencies today 4/17/12. American Style: A$ $1.0375, kiwi .82, C$ $1.0035, euro 1.3135, sterling 1.5955, Swiss $1.0930, . European Style: rand 7.8165, krone 5.7445, SEK 6.7550, forint 226.10, zloty 3.1860, koruna 18.8630, RUB 29.58, yen 80.70, sing 1.25, HKD 7.76, INR 51.48, China 6.3015, pesos 13.14, BRL 1.8470, Dollar Index 79.50, Oil $103.57, 10-year 2%, Silver $31.72, and Gold. $1,656.25

That's it for today. A Huge win late last night for our Blues, who got back their home ice advantage with a win in San Jose. I didn't see the game for I was in bed before the pre-game show came on. But I taped it. Go Blues! The little restaurant around the corner from my house, that we visited at least once a week for dinner, had to stop serving dinner for lack of business. Just last week I had a jambalaya pot pie! Too sad. Well they didn't have to stop because of me! It's getting to that time of year, where I'll be outside grilling, smoking, and barbequing, so maybe that will make up some of the difference. I did some great pork steaks on Sunday. 2 ½ hours in the Weber using indirect heat. Yummy! OK. enough! I've really carried on today, tax day 2012. I hope you have a Tom Terrific Tax Tuesday!

Chuck Butler


EverBank World Markets



Posted 04-17-2012 11:10 AM by Chuck Butler
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