RBA Cuts Deep.
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In This Issue.

* A$ & kiwi sell off by 1-cent.

* Did the RBA get ahead of the curve?

* Craziness in loonie trading.

* An opposing view on Silver.

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

RBA Cuts Deep.

Good day. And a Tom Terrific Tuesday to you! And Welcome to May! A tough night for our Blues. they are folding like a lawn chair in the second round. I really thought this might be the year they make it to the finals. I'm 1,100 miles away from St. Louis, and I was able to watch the game, but had to turn it off as it was making me ill watching it!

Speaking of making me ill. That darn Reserve Bank of Australia (RBA) really threw cat among the pigeons last night, by not only cutting their interest rate, which was expected, but by cutting it by 50 basis points (1/2%)! While I had heard calls for such a deep cut, I really didn't think the RBA would be so dramatic. the economy was not that slow, jobs were still be added, and while China's economy has moderated, it hasn't fallen off a cliff! I can't get the Cat Stevens song, the first cut is the deepest out of my head this morning. (yes, Rod Stewart and Cheryl Crow did the song, but the old Catster wrote it!)

So, why then, Glenn Stevens did you decide that 50 basis points (BPS) was needed? Well, we won't know for sure until later this year, but. maybe, just maybe, the RBA is getting ahead of the curve. OK. I told you that the markets had forecast additional 25 BPS rate cuts the rest of this year, prior to the move yesterday by the RBA. So, with a 50 BPS cut, maybe the RBA bringing forward those additional rate cuts, and actually getting ahead of the curve!

Of course that doesn't help the Aussie dollar (A$) now. For the 50 BPS rate cut was more than the markets had "priced in" to the A$... the surprise at the size of the move, and everything else, like the next rate cut coming in the 4th QTR, the A$ got taken to the woodshed.. the A$ lost over 1 full cent, falling from $1.0425 to $1.0315 this morning.

A quick trip across the Tasman, shows us that the New Zealand dollar / kiwi has seen sympathy trading, and has lost about 1-cent alongside the A$.

The currencies, minus A$ and kiwi, have for the most part remained in the tight ranges they've been in for about a week now, and the bias to sell dollars remains as a weak bias right now. Gold has given back the $13 it gained last Thursday. and later, I have the response to the Barrons article that I posted yesterday on Silver.. So, stick around for that! HA!

Two currencies this morning are on my list of "Currencies that should be losing value". and both are NOT losing value! The Japanese yen, actually breached the 80 figure last night, but that immediately brought out the jawboning to get it weaker, and that worked for a brief time, but the markets have taken yen back below 80 this morning. (remember, yen uses the European style pricing convention, so the lower the price, the greater the value VS dollars)

The other currency on that list is the British pound sterling, or just the pound.. Last week I told you that the U.K. economy had gone negative in the 1st QTR, and now this morning, U.K PMI Manufacturing was very disappointing, printing at 50.5 VS the forecast for 51.5. Yes, it remains above the 50 level that is the line in the sand for expansion VS contraction, but it's moving the wrong way, folks. But the pound remains well bid at 1.6215.

So, clearly, fundamentals are not working in the case of the Japanese yen and pound sterling.

Speaking of PMI Manufacturing Indexes. the U.S. ISM, (formerly known as PMI) will print this morning. Given all the weaker regional reports, like yesterday when the Chicago ISM was weaker than expected, I would have to think that we'll see some slippage in the U.S. manufacturing index. If fundamentals were to be in play, that would be dollar negative today.

Well, in a case of you can't win no matter what direction you choose to go. Yesterday, I told you how the Canadian dollar / loonie had lost some ground because the Bank of Canada (BOC) was contemplating hiking rates ( I still don't believe they will. they should, but won't). And then on Monday, Canada's February ( I know, this is old news now, but we carry on) GDP unexpectedly fell .2%... So then, the uber-intelligent currency traders sold the loonie because now, the GDP won't lead to a rate hike! Strangeness for sure!

Yesterday, the loonie was closing in on $1.02, but has slipped back to $1.0115 this morning on the weak GDP.

Yesterday, I mentioned how I thought Aussie bond buyers were the reason the A$ had gone higher in the face of a rate cut. and that got me thinking about 10-year bond yields around the world. Here's a quick list.

U.S 1.91%,

Eurozone 1.66%

U.K. 2.09%

Canada 2.04%

Australia 2.60%

I only used G-10 countries. I didn't drill down to the Spain and Italys, for those would really blow this exercise out of the water.

I guess what I'm really trying to illustrate here, folks is that yields around the world are pretty low, which is why the markets are fixated on higher yields.. Looking everywhere for higher yields, turning over every rock, and looking under every bush.

When that happens, investors turn to riskier investments to provide them the yield they desire or require.. On the Markowitz risk / reward yield curve, this would really be out there on the curve. So.. be careful looking for higher yields.

Yesterday's data here in the U.S. brought us two of my faves to follow. Personal Income and Spending. Instead of me going through this. my friends, Addison and Dave over at the 5-Minute Forecast, or The "5" did a great job of doing that, so I'll let them take the ball here.

"It shows spending grew 0.3% in March, while incomes grew 0.4%. Which would be fine, except about one-fifth of the income growth came in the form of government checks.

Meanwhile, the same report shows the Federal Reserve's preferred measure of inflation - "core personal consumption expenditures" - rose 2.0% year-over-year. That's right in the Fed's sweet spot. Any resemblance to your own cost of living is entirely coincidental."

Thanks Guys!

Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co (PIMCO) said yesterday that "the structural distortions brought by central bank credit expansion will limit future growth and induce the risk of inflation." He went on to say, in this Bloomberg story that, "Not suddenly, but over time, gradually higher rates of inflation should be the result of QE policies and zero bound yields that will likely for years to come."

Commodities represent one of the holdings in an investment portfolio that PIMCO believes should be a part of the asset allocation. Interesting, eh?

Then There Was This. So. yesterday I printed the Barrons article where the author blasted Silver, and the prospects of Silver recovering. Today, I bring you the opposite side of that argument. the Currency Capitalist writer Evaldo Albuquerque opines on Silver, so let's listen in. "About two months ago, I told you that the Fed and the European Central Bank's monetary policies would help push silver higher this year. So far, silver has mostly moved sideways. But this may be about to change.

Now there's a chart pattern that indicates silver may be getting ready to take off. It's still too early to be sure. But if this pattern develops the way in which I think it will, silver could rally 40% from here.

The pattern I'm talking about is an inverse head-and-shoulders. This is a bullish pattern because it indicates a downtrend is turning into an uptrend. In other words, this pattern is usually followed by a strong rally. So it's worth keeping an eye on it. "

Chuck again. Thanks Evaldo. as I said yesterday, if the price manipulators would keep their hands out of Silver's cookie jar, the price of Silver would be around $75 by now.

To recap. The RBA did cut rates last night, but went for a 50 BPS rate cut, instead of the 25 BPS cut I had thought they would go for, and the A$ got taken to the woodshed for over 1-cent loss. Kiwi sold off in sympathy trading. but the rest of the currencies pretty much range traded like they had for the past week.

Currencies today 5/1/12. American Style: A$ $1.0325, kiwi .8140, C$ $1.0135, euro 1.3265, sterling 1.6225, Swiss $1.0140, . European Style: rand 7.7680, krone 5.7105, SEK 6.7165, forint 215.65, zloty 3.1450, koruna 18.8270, RUB 29.40, yen 79.88, sing 1.2365, HKD 7.7580, INR 52.73, China 6.2769, pesos 13.02, BRL 1.9080, Dollar Index 78.72, Oil $104.63, 10-year 1.91%, Silver $30.93, and Gold. $1,663.38

That's it for today. Well, I was dragging a bit this morning when the alarm went off, but then right from the get-go, I fired everything up and my I-pod began playing music, and the first song to play was one of my all-time faves. from the 60's. a song called Black is Black by Los Bravos. go to the I-store and buy it, you'll not regret it! Well, it's time to get the coffee going, and see what Robin Meade is up to today. Don't know when the wind, rain and clouds are going to go away, but it's been that way here for the past 4 days, and today makes 5! UGH! Sure hope our Blues can find a way to win in L.A. or else they'll be swept out of the playoffs. UGH! It's May Day! Do they still have May Poles? Oh well.. time to go. I hope you have a Tom Terrific Tuesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 05-01-2012 11:56 AM by Chuck Butler
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