EU Summit Is Non-Event!
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In This Issue.

* Blood in the streets for risk assets.

* Currencies try to rebound today.

* Thoughts from Ted Butler.

* Treasury yields do go lower.

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

EU Summit Is Non-Event!

Good day. And a Tub Thumpin' Thursday to you! Whew! What a day yesterday in the markets! There was blood in the streets for sure! Things have calmed down a bit overnight and this morning, but the mark that yesterday left on the risk assets is going to be not only felt, but seen for some time.

Well. the talk about a Grexit softened its tone a bit yesterday. Shoot Rudy, the markets were basically saying that Greece could exit the euro this weekend! The U.S. is obviously on holiday this coming Monday, and that fact has factored into the calls for an exit this weekend.

Again, I don't see this happening, as the cost to Greece, the pain and mess will be far greater to the Greeks than their austerity measures, should they decide to leave. So, I'm on the side of the fence that says Greece stays. The EU Summit was a non-event. EU leaders left the Summit without any meaningful plans. They all agreed that Greece needed to stay in the Eurozone, but could not come up with any meaningful action that could be taken.

If you go back in time, when the Greek debt problems first called for a bailout, and the markets all thought that the contagion effect would take over all the Southern Eurozone Countries, I told you then. that the only way to deal with this so that there is no further contagion is to issue a Eurozone bond, and quit having each country hold their own auctions. Yes, it takes another chink from each country's sovereign armor, but, when each Eurozone country decided to give up their sovereignty of their currency, they opened the Pandora's Box of how to lose one's Sovereignty.

So, now skip ahead to the EU Summit, where discussion of a Eurozone bond would have nipped the daily flogging of the euro in the bud, the EU leaders decided to push that discussion off to the next Summit. What? These guys are really beginning to give me a rash! What the heck are they thinking? Oh, I know. They are thinking that maybe with time, the problem goes away, and they don't have to have that Eurozone bond discussion.

My dad used to tell me all the time that most problems will take care of themselves with time. However, I think the EU leaders have chosen the wrong road to journey down. They needed to address this problem now! So. they decided to see if the problem will take care of itself, with time. I'm sure they will rue the day they decided to journey down this road.

OK. the euro this morning is down just a bit, as it shrugs off the non-event EU Summit, and the news this morning that German Business Climate as measured by the think tank, IFO, fell by the largest one-month margin (-3 pts) since August 2011. The experts had thought it would be a negative number but a soft negative number, not a hard negative number. German flash PMI's (manufacturing Indexes) also are showing some weakening. So, even the calm in the eye of the Eurozone storm, Germany, is showing that the overall weakness in the Eurozone is hurting them too.

Speaking of PMI's. In China, we always get two sets of PMI's. The Government issues their report on the pulse of manufacturing, and HSBC (Hong Kong Shanghai Banking Corp) issues theirs. And never do the two match up. For instance, last month the Gov't issued a report that said that manufacturing as measured by the PMI was a number above 50. and HSBC issued a report that said it was below 50. (remember 50 is the line in the sand that denotes whether manufacturing is expanding or contracting).

I always grow suspicious of Gov't reports that don't line up with those in the private sector. Take the U.S. economic reports VS Shadow Stats. There are HUGE discrepancies between these two. But the sheeple here in the U.S. don't pay attention to any of this. Whatever the Gov't tells them they swallow hook, line and sinker.

So. anyway, getting back to China. The HSBC PMI report showed a 7th month of below 50 for April. The Gov't report is usually printed on a weekend, so we'll see what this has in store for us this weekend, as the pools open here in the U.S. (ours has been open for a month!) and the smell of charcoal drifts through each neighborhood, and we sit back and reflect on the meaning of Memorial Day.

Did you know that Memorial Day was originally called Decoration Day? And that it was originated after the Civil War to commemorate the fallen Union Soldiers of the War? Notice it was only the Union Soldiers. Apparently, the South held their own Decoration Days in each region on different days. we joined this all together and called in Memorial Day, to honor the men and women that had died while serving in the U.S. armed forces, and said it would be the last Monday of May in 1911.

There you go! A public service education announcement! You get it all here folks! Why go to any other newsletter? Just kidding. Of course, absolute newsletter reads that I have include: The 5 Minute Forecast, anything David Galland writes, Doug Casey, Bill Bonner, David Rosenberg, and I even carve out time for my friend John Mauldin once a week. and of course, the Mogambo Guru!

I wanted to write about this yesterday, but forgot all about it, until I had hit "send"! UGH! But did you see the latest Existing Home Sales data here in the U.S.? Very strong, and for the first time in a year of Sundays, the Home Price increased! WOW! Did we just hit the bottom for home prices? Somehow I can't get my arms around that thought. I just think about the unemployment situation, and the foreclosures coming down the line, and have to think that this was just a one-month blip. But maybe I'm wrong, and it's time for me to stop being such a negative Nellie.

Well. I really wanted to send Chris a note on this last week, and then something happened that took my attention away from the story. Then I thought I would talk about it first thing this week, but then something happened to take my attention away from the story, so ,now. on Wednesday afternoon, while I'm thinking about it, I will write it down for Thursday. And. it's Thursday!

Basically, I wanted to talk about sentiment. and focus. While everyone was having a cow over the Greek debt and whether they would form a new government and all that. the 8th largest economy in the world, announced that they had miscalculated their budget deficit, and what had previously been forecast to be $9 Billion turned into $16 Billion in deficits. That 8th largest economy in the world? Not Greece. Not Spain.. Not Italy. but. The great state of California.

The sentiment right now is that the Eurozone's center will not hold together. and the focus is on the Eurozone's problems and not those here in the U.S. with the same thing. debt. Trader sentiment and focus is all that's needed to either make a currency's day, or send it up the creek without a paddle.

And right now, the euro has been sent up the creek without a paddle.

Gold & Silver saw another day of selling yesterday, and are down once again. (I have some words on this from Ted Butler in the TTWS section today). And the Aussie dollar (A$) has bounced higher this morning. I have given you two measures that are used to calculate if a currency is oversold in the past week, and both showed that the A$ was oversold. But that doesn't always mean that traders will jump to buying, in this case the A$, immediately. Not with the U.S. dollar strength so prevalent in the markets right now. But they will. traders can't break free of their urges to react to charts and index measures.

Hey! I just watched the price of Gold go from a negative $5 to a positive $5 in less than 5 minutes! WOW! Well. maybe the shiny metal can catch some wind in its sails today.

The 7-year U.S. Treasury Auction was interesting. The yield on the 7-year note fell to 1.13%... That's a record low yield, folks. And just when I thought that yields couldn't really get much lower! I'm sitting here with the thought of "Yes, Virginia, Treasury yields can go lower". Hey! For the award of financing U.S. deficit spending, you can get 19 basis points of yield out 1-year. Of course by the time the broker takes his pound of flesh for doing the trade, you probably end up with a negative yield. And I hate to break this to all you U.S. Treasury buyers, but unless you go out 30 years, you have negative real interest on your holding. (real interest is the yield - inflation).

And then the two anti-dollar investments, Oil and Gold, who have been butchered lately with the dollar strength, at least didn't lose any more ground overnight. I'll have to go read the Mogambo Guru to see what he's thinking these days about the price of Oil and Gold.

Then There Was This. from Ed Steer's Daily. "This is Ted Butler speaking. "The price action this week has been horrid. It is horrid because the crooked commercials on the COMEX have made it horrid. There is no legitimate economic justification for the price decline since Feb 28th other than the price action was created to permit the commercials every opportunity to scare and induce others into selling COMEX contracts so that the commercials could buy. Almost every day the price of silver and gold seem to be put lower in thin overnight trading. Almost every day we start out "in the hole" where it is a struggle to get back to unchanged. This is not accidental, it is a deliberate plan to demoralize and keep silver investors confused. It is shameful that the CFTC has been captured by the crooks and is content to look away."

"The good news is that the commercials have succeeded in buying record amounts of silver (and gold) contracts. It's impossible to pick the timing of the next rally, as we are in a sort of "no man's land" currently, where technical type buying won't come in until the moving averages are penetrated to the upside. There still doesn't appear to be much speculative selling remaining in silver and gold after the orchestrated take down of the past couple of months, but neither is there any impetus for technical buying below the moving averages. In this environment, it's not hard for the commercials and HFT practitioners to put prices sharply lower at will. About the only sane reaction to all this is to accumulate and hold physical silver for the long haul, as the short term manipulative games won't last forever." - Ted Butler

Chuck again. last week at the Las Vegas Money Show, the booth across from ours was Investment Rarities, which is Ted Butler. One of the guys in their booth came over to me and told me what a fan he was of the Pfennig. And I was like, When you have Ted Butler? WOW.

To recap. There was blood in the streets yesterday with the risk assets, as the asset prices dropped all day long. Today, we're seeing some light, not much, but some, for the risk assets. German IFO and flash PMI's say that even Germany is weakening. The 8th largest economy in the world, announced that their budget deficit was $16 Billion and not the $9 Billion they originally told everyone it would be. And yes, Virginia, U.S. Treasury yields can go lower.

Currencies today 5/24/12. American Style: A$ .9785, kiwi .7545, C$ .9770, euro 1.2575, sterling 1.5680, Swiss $1.0470, . European Style: rand 8.3425, krone 5.9935, SEK 7.1545, forint 237.40, zloty 3.4520, koruna 20.1625, RUB 31.62, yen 79.35, sing 1.2740, HKD 7.7635, INR 55.72, China 6.3450, pesos 13.94, BRL 2.0310, Dollar Index 82.02, Oil $90.60, 10-year 1.74%, Silver $28.09, and Gold. $1,565.70

That's it for today. Sorry for my going off-road a few times today. but like I've said for years now. this is a stream of conscience in the early morning, so for new readers, now they know what causes that! Cards got back on track after getting back home this week, but then they were playing a team with a bad record. The Big Bad Phillies come to town now, let's see what happens now! The last day of school today for Alex, Andrew and Dawn. (Andrew & Dawn are teachers) I'm listening to Found Out About You by the Gin Blossoms. What happened to the Gin Blossoms? Now, Dock of the Bay is playing, I know what happened to Otis Redding! Well, I guess it's that time, so I'll get this out the door. and I hope you have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 05-24-2012 10:47 AM by Chuck Butler
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